Whatever Happened to Those Frum "Life Insurance" Programs?

14 years ago, smart people proved they couldn't succeed. But were they right?

Every now and then something (or someone) reminds me of some unfinished business from ancient history. This time around, it’s the years-old controversy over whether community “life insurance” collectives made any sense. When I first heard the strength of the arguments against them (as presented by R’ Yakov Horowitz and someone identifying him or herself as “OLD FRUM ACTUARY”), I assumed that groups like Areivim USA would soon fail and quietly go wherever all bad ideas go.

One issue is that the program’s existence would seem to discourage families from purchasing commercial term life insurance. Besides the fact that term life is inexpensive and reliable - a healthy 30 year-old non-smoker in the US should be able to find a 20-year $1,000,000 term life insurance policy for $30-40 a month - it was also strongly recommended by R’ Moshe Feinstein.

But the primary problem is that the math simply doesn’t add up. The system, as advertised, can’t possibly work.

But it seems that Areivim is definitely still around. And their regularly-updated website even explains how a temporary contribution increase allowed them to make it through the difficult COVID years. I can’t even find anyone on the internet with anything bad to say about them.

What do you do when “impossible” comes face-to-face with “well, it’s happening”? We’ll get to that soon. But first I should explain the “impossible” part.

The idea is for large numbers of frum families (ideally 16,500 per group) to agree to contribute as much as $42 each month for one-time $150,000 payments for each eligible child. The payments would be managed in a low-risk trust until, say, the child gets married.

Before we can properly assess whether these plans actually make sense, we’ll need to understand mortality rates in the Orthodox community. In other words, from a statistical perspective, how many Orthodox Jews do we “expect” to die each year. More specifically, since the plans cover the lives of parents of younger children, how many Orthodox Jews between the ages of 25 and 64 do we “expect” to die each year.

We won’t find exactly the numbers we’re after here, but there’s enough associated demographic data available to allow us some good estimates.

Between 2000 and 2020, New Jersey residents between 25 and 64 years old died at an average annual rate of 682 people per 100,000. In the context of a single Areivim group (16,500 members), that would translate to around 112 deaths. Assuming, on average that each of those 112 parents left four eligible orphans, there would be only $18,400 available for each child. That’s not even close to the program guarantee.

Is it possible that Orthodox Jews don’t die at the same rates? Interestingly, that does seem to be the case. The average white resident of Lakewood Township - which, as we’ve already noted, is for all intents and purposes statistically Jewish - lives until 79.49 years, compared with the 77.17 year average enjoyed by all white residents of New Jersey. Who knew that bad traffic and Thursday night cholent were good for you?

We might be able to do a better job quantifying the discrepancy between mortality rates in the frum and general populations. Averaged over 20 years or so, the crude all-causes annual death rate (per 100,000 residents) for all New Jersey residents was around 835, while the corresponding rate for Lakewood was just 694 - a difference of 17%. Which is weird. When I removed the COVID years (2020-21) where the numbers were a bit strange, the difference dropped to 14%

Now if I were to reduce the general New Jersey expected annual deaths for individuals between 25 and 64 years by the 14% “Jewish” difference, I’d get 97 expected annual deaths for each full Areivim group. That would bring the payout for each orphan up to around $21,400, which is still nowhere near the promised amount.

So why has Areivim not collapsed under the weight of bad math? How were they able to survive COVID with nothing more than a temporary contribution increase? I can imagine some or all of these factors could have played a role:

• Because Areivim excludes people with pre-existing conditions, their members are going to be healthier and will therefore die at significantly lower rates.

• Because Areivim doesn’t issue payouts to orphans whose families have other adequate sources of funds, a significant percentage of group members won’t be eligible for payouts.

• Because group member demographics are likely skewed towards (slightly?) wealthier families (and families who are likely to have their own term insurance policies), the proportion of ineligible orphans is going to be higher.

• Because Areivim cancels membership for individuals who are delinquent in their payments, the funds those members had paid until that point remain in the pot for use by everyone else.

• Because Areivim encourages donations.

• Perhaps most of all because Areivim was created by wealthy individuals who were alarmed by the suffering endured by uninsured families - and by how often they were approached for funds to rescue suffering orphans. It’s reasonable to expect that such wealthy people would have an interest in quietly propping up their system to ensure it doesn’t collapse (ותהא עליהם ברכות).

Organizations like Areivim deserve a lot of credit for apparently understanding these economics and using them to craft a successful chesed movement. Although having said that, it’s still possible that the system hasn’t worked. Consider how it can be many years before full payments to impacted families are actually due. There might still be unfunded liabilities to covered orphans who lost parents 14 years ago but have not yet had to pay for their weddings.

Either way, I believe the public-facing message should still be focused on traditional commercial term life insurance policies.

Do you have any inside information on this trend? Please do share it.