Guest Post: AREIVIM and Why I Don't Like IT

With great thanks to "Old Frum Actuary" who is publishing a response to a heavily advertised plan by the name of Areivim that I believe is a disaster waiting to happen and is nothing more than a poorly conceived tzedakah disguising itself as life insurance. Like my guest poster, I don't care how big names appear as endorsers. The math simply doesn't work and the level of accountability is low, to put it politely. Regular readers know that I don't regularly publish the name of a tzedakah organization when I comment on trends, but I am making an exception because I feel so strongly about the important of life insurance and I believe that anyone who enrolls in this plan is not only buying into something that is simply unsound, but is playing into a trend of form over substance, and ultimately delaying an introduction of substance. Guest post follows:
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AREIVIM and Why I Don’t Like It
By OLD FRUM ACTUARY

This is just my opinion so you are more than free to disagree. Of course some numbers to back up any counter claims should be a requirement.

Here is the Areivim plan:
A group of 14,286 (families) enroll by submitting an application and a credit card number. If someone in the group dies, the remaining members will be charged $7 per surviving unmarried child, for a total of $100,000 per child. No more than $28 will be collected per member per month. For example, if someone dies and has 7 children, the first month’s collection will be $400,000 (14,286*$28) and the second month’s collection will be the remaining $300,000. If there are no deaths, there are no charges.

Now for the problems:
With 14,286 people and a maximum charge of $28 a month, the maximum amount that can be collected in one year is 14,286*$28*12 = $4.8 million. This means the maximum number of children that the group can pay for in any year is $4.8m/$100k = 48 per year. Since this arrangement is marketed to the Chasidic and RW communities, I am going to assume that the average family has 6 children. With an average of 6 kids per family, that means the fund can handle no more than no more than 8 deaths per year.

How many deaths can we expect from a group of 14,286 people? The answer of course depends on the age of the cohort. But from the mortality tables I looked at, there is no way that this will work. Remember, that there is no underwriting. Furthermore, the latest mailing states that not only will they give $100,000 per child, they will also give money to a surviving female spouse with 3 or more children. Last, it also appears that they will pay money to the surviving children whether it is the father or mother who pass way. This means that in the cohort of 14,286, there are actually over 28,000 people at risk for dying. Assuming 8 deaths or less from a group of 28,000 is well below any mortality table at any age.

Another question I had was as follows: As more people die the group gets smaller, so that later deaths do not have 14,286 people each chipping in $7 per child. So unless there is a constant flow of new people signing up and paying, by definition the plan fails. And any plan that requires constant new entrants to be able to pay the older ones is not an insurance plan but rather a Ponzi scheme.

Furthermore, credit cards get cancelled or expire. Who is going to track down the large number of uncollectable funds after each death? Isn’t there a cost for collecting money out of credit cards? Who is paying for that?

Yet another issue I have is regarding their rule on what happens to the $100k after collection. According to their brochure, ‘special accounts’ will be set up with the oversight of rabbonim, run by askonim who will distribute the money over time, to and through the wedding. I am pretty sure that Bernie Madoff himself would have passed the “rabbonim oversight” test. If there is any potential for fraud and abuse, this is it. Having a multi-million dollar fund in the hands of an ‘askan’ is a recipe for disaster. And cynics like me will be the first to point it out to anyone who asks.

Last but not least, are the distortions and outright lies in their most recent mailing. The brochure begins by stating that after two years the program is working, so all the naysayers were wrong. First, I am not sure two years would be enough time to prove any such thing. Second, according to my sources inside the organization, they still do not yet have a cohort of 14,286 people, so how can they say this? Third, this statement is completely un-auditable. We have no idea how many people have signed up, how many deaths there were, and whether or not outside collections were used to pay for them.

Later in the brochure they state that as of now 3 out of every 5 people have not yet signed up for Areivim. Using my brilliant analytical skills I determined that they are therefore saying that 2 out of every 5 people have signed up. Do you believe that 40% of Klal Yisroel has signed up for this plan? Let’s put it this way, do you know anyone who has?

The brochure also says that ALL the Gedolim in EY and America have endorsed it. Well, my son’s Rosh Yeshiva put up a sign in his Yeshiva saying that he doesn’t; though perhaps all that proves is that my son’s RY is not a Godol. J My Rov was also asked to endorse and he too refused.

The brochure makes mention that the number of deaths experienced so far is far lower than ‘Al Pi Derech Hatevah’ (expected). This is in fact quite possible even if I can’t audit them. And perhaps that can be their selling point - join Areivim and Hashem will bless you with a lower-than-expected mortality. But I think we are all better served by buying insurance from a reputable insurance company, with an annual financial statement and appropriate reserves, that pays the beneficiaries upon death.