Manager’s Insurance (Bituach Minhalim)
One of the confusing retirement products in Israel is the popular Managers Insurance or Bituach Minhalim. This is retirement savings policy that typically includes life insurance and disability insurance. The amounts contributed are a function of monthly salary and this premium is allocated between retirement savings and insurances depending on client needs. Unfortunately, the policy details and statements are confusing and professional advice from a licensed agent is necessary. However, the essential takeaway is that the policy combines retirement savings, life and disability insurance specific to the clients requirements.
The most interesting thing about Bituach Minhalim, and this is unique to Israel, is the fixed annuity payout ratio, in Hebrew this is called the “mikadem.”. The mikadem is in effect the divisor used for calculating the monthly payment at retirement age. The mikadem figure is how much funds are needed to buy 1,000 shekels a month for life. A mikadem of 200, means it would cost 200,000 shekels to buy an annuity that would pay me 1,000 shekels a month for life. To illustrate, if I saved 1,000,000 shekels at retirement in a policy with a mikadem of 200, then I would receive 5,000 shekels a month annuity for life. This is in stark contrast to a pension fund which has no guarantee of monthly annuity, rather there is aprojection of expected pension payment but this is subject to the overall pension fund performance including actuarial risk.
What makes this product so newsworthy is that the older policies were using mortality tables with lower expected lifespans, in effect mispricing the risk or futusre payout, and rendering these policies to be valuable. Further, life expectancy has been on the rise, approximately one additional year each decade, making these policies even more desirable. Fearing a insurance company solvency crisis, as the liability for these older polices can be staggering, the Insurance Commissioner prohibited the marketing of these policies with a fixed mikadem. Incidentally, these policies have very high management fee, often explained away as the cost of the mikadem. To clarify these older policies are no longer available, only existing policy holders are allowed to contribute.
If you have an old bituach minhalim policy it is vital to consult with a licensed insurance agent to properly understand its terms and condtions and what to do regarding contributions. In addition, the Insurance commissioner has recently enacted provision to allow moving policies from one company to another, in an attempt to foster competition and lower the extortionate fees on some policies.
In any event, the article above is to provide general picture, always consult with a professional agent.