The House of Representatives approved a bill Thursday allowing life insurance companies to cut their promised yields to policyholders.
The bill to amend the Insurance Business Law passed with votes from the ruling coalition, which characterized the move as an attempt to ward off bankruptcies among insurers.
Opposition legislators voted against the bill on the grounds it is aimed at bailing out insurers at the expense of their policyholders.
The bill is expected to be passed by the House of Councilors, where the coalition parties also have a majority, later this month. The amendment would then take effect by the end of July.
The amendment allows life insurance companies to reduce the rate of investment returns promised to policyholders to a minimum of 3 percent.
Life insurance companies have been struggling to pay high yields they promised on policies they pitched during the bubble economy of the late 1980s, when interest rates were much higher than the near-zero level they are at now.
Opposition lawmakers have fiercely resisted the plan, saying the sole purpose of the measure is to salvage life insurance companies and banks that have large cross-shareholdings with insurers.
They also say the amendment is not workable because any insurance company that applies to cut yields will face bankruptcy as the application would indicate it is in financial trouble and trigger a run of policy cancellations.
Prime Minister Junichiro Koizumi said earlier this week the amendment is meant only to protect policyholders by offering them an option other than the bankruptcy of the company with which they are insured.
The amendment also stipulates that life insurers proposing to cut yields must discuss the matter with their policyholders, he said.
"This is not something that will be forced on them," Koizumi said. "This is only meant to provide an option."