To clarify: you may have seen it on areivim, but the headline ("A Kosher Pyramid Scheme") is from Ynet.
No, the program is called Areivim.
Of course this is not clear, I guess.
(Although I did indeed originally see it on Areivim, the list.)
Oh yeah, good point.
Sorry, I just finished writing a rather long areivim response, and I suppose I was thinking of two other bloggers who would frequently quote from Areivim.
My bad.
/me buries his head
Is there an actuary out there who can comment on whether this plan is feasible based on ordinary actuarial statistics. Also, wouldn't there be required to be new members coming in at all times to replace those who die.
I'm curious myself if its feasible. I also wonder about how the money would in fact be collected and if it is true that no member family would ever have to contribute more than $18 a month, what to do for those for whom there isn't even an extra $18 a month, and there must be many.
I have actuarial training (in Property and Casualty) and when I read this I didn't think it would work. But I ran it by an accredited actuary and he said that it could. I don't understand how, though. If 50 men r"l die in a year and they each have 8 kids, that means that every family among the 10,000 has to give away $2,000 a year. How many kollel families can afford that? I don't have the statistics available, but I wonder whether 50 adult males out of 10,000 dying in a year is a 1 in 100 occurence, or greater or less likely.
The article said that each family could not be pressed for more than $18 a month. I'm not sure how they could ensure that. Maybe there are private donors who will make up the difference?
In any event, as I said, I am sure there are more than a few families who couldn't spare even the $18 a month.
Do you really have 10,000 families to do that with?
I mean, how close can 10,000 families be to eachother to make that work?
Or is the idea of a cooperation doing that, and taking money upfront?
I read the prospectus and here are some clarifications:
The money will be collected by a bank order which the participant signs at the beginning.
The maximum collected is $18 a month. So if (as in the example of Gil) $2000 are due, the money can only be collected over a period of 10 years.
Since they distribute the money only at marriage time, they possibly calculated that the majority of the children will be young at collection time.
A further weakness of the program is that you can get out any time (you lose then also the advantages for your own family). I can imagine that somebody who spent already $2000 will get out very soon.
So the program stands or falls depending on the distribution of "good" and "bad" risks with the participants.
In this respect another point has to be considered: They do not demand a health check (you only have to confirm that you felt well during the last year), so the distribution could lean well towards "bad" risks.
There's only enough money in the year for 43 orphans. Considering we are talking about families with an average of about 10 kids, this means they expect only 1 in 2500 heads of households to die in a given year.
Uhm, has ANYONE there thought this math through?
Uhm, has ANYONE there thought this math through?
Nah. They are Chareidim. They never even heard of actuaries. They can hardly even think.
While I also got that implication from LZ's words the question of how this could work is fair.
If LZ would have limited his comment to the first paragraph I would not have responded at all. I tried to make that clear by quoting only the last part of his comment.
Another actuary chimes in:
It sounds like the assumed mortality rates are realistic, and while the monthly expense cap is nice, it also makes the whole scheme unworkable.
There are, of course, life insurance companies that do this sort of thing - I'm not sure why there needs to be an attempt to recreate the wheel.
Maybe I'm misreading this but the way it reads to me is that $5 is collected from each family for each insured individual, not each child. It is somewhat ambiguous because at one point in the writeup it says each orphan gets 50,000. I dont think that's what it means. If that's what they do mean, then people with fewer children would be loathe to join.
I would be leery of such a scheme. Who is in control of the $18 a month that 10,000 families are supposed to have their banks send? What is to prevent this person or group from using the money as they see fit? If the money is to be invested, what controls are in place to insure a conservative investment stategy?
Y. Aharon
Uhm, has ANYONE there thought this math through?
Nah. They are Chareidim. They never even heard of actuaries. They can hardly even think.
LkwdGuy | Homepage | 09.13.06 - 9:47 am | #
How could such a large scheme with such a simple premise and no margins work? There is no indication of any controls in place within each group to protect against statistical abnormalities.
Its fairly simple. Not only people with kids sign up. Allow me to explain a bit of backgroud
There are a few well known LARGE tzeddakah organizations here in EY. Vaad HaRabbonim, Vaad HaArtzi, Kupat Hair of Bnei Brak etc. People give them lots of tzeddakah all the time. They come around collecting when someone dies or gets sick and they need a ton of money. I dont undestand how they are able to raise so much money, but HKBH helps. Someone told me that RAYL Shteinman once advises the committee organizing for a family who lost the father not to stop until they raise *800,000* Dollars. WOW. And they made it.
This "insurance" works, bc its not insurance. Its Tzeddakah. The money doesnt go to the person who gives. It goes to the well known tzeddakah organization IF his family needs it. If his kids are married already, they dont get. The assumption is that even people who dont have kids, and those that have kids, who get married, will stay on the program, offering up to $18/month to orphans.
IF all the people have 10 kids, it makes this a bit unbearable. But on the other hand, not every chareidi family has 10 kids. SHOCKER. some dont have. some have 2-4. Some that have 10, have 8 married already.
Also, the max per family, i think, is $500,000, so it maxes out. Im not sure if this one does, but there are 2 parallel organizations doing this here in EY and one maxes out, the other doesnt.
And yes, obviously, this was gone over by actuaries. Think of your life insurance policy. Im sure its not so much higher per month. And the CEO's and managers are looking to make a profit. Here they are not. Supposedly
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