On average, people who switch to e-cigarettes will receive a 2.5% discount on premiums, people who switch to Philip Morris' heated tobacco product iQOS for three months will receive a 25% discount, and people who quit smoking for at least a year will receive a 50% discount, the company said. Premiums for a 20-year-old nonsmoker run about £5 ($6.47) per month for a life insurance policy that pays £150,000 ($194,125). The same premium would buy a £60,000 ($77,650) policy for a 40-year-old nonsmoker.

Called Reviti, the wholly owned subsidiary will initially sell life insurance in the U.K. with plans to expand into more markets overseas. Smokers will receive discounts if they stop, quit or switch to a possibly less carcinogenic product, like Philip Morris' vaping devices.

PMI said it determines how big of a discount to give people for using alternative products based on the scientific data along with the potential of a product to reduce a person's risk. PMI sells a number of cigarette alternatives, though it's placing a much bigger bet on iQOS, a device that heats tobacco rather than burning it.

E-cigarettes are incredibly popular in the U.K., thanks in part of the country's public health agency embracing the products as a less harmful alternative and encouraging people to switch. Offering people bigger life insurance discounts for switching to iQOS may push more people to try it.

One day, PMI hopes to stop selling cigarettes altogether, CEO Andre Calantzopoulos told CNBC in an interview Tuesday.

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"Obviously that makes sense for public health and the people who smoke themselves, but it also makes sense for our shareholders because financially, as these products are not cigarettes, they benefit from lower excise taxes and better margins, so it's a win-win for everybody," he said. "That's why we all move in this direction, and the faster we move out of cigarettes the better for all of us."