My friend Dave is trying to organize a tontine. He says it’s very simple. We each put an equal sum of money into an investment pool. Whoever outlives everybody else gets the money plus the accumulated earnings. What a strange concept! Put up your money, then hope for the ultimate misfortune to visit the other members of the group. I’m fascinated by the idea of it. What other chance do you have to gain from the deaths of your friends and acquaintances? It’s the ultimate lottery. Who came up with this idea? Was it the forerunner of our current life-insurance system? Have there been any famous tontines? Has anybody really raked in big bucks by winning a tontine? Should I join? –Barry Gardner, Washington, D.C.
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This guy Dave–he doesn’t have an odd gleam in his eye, does he? Tontines (pronounced TON-teens) are strange, but not as strange as he makes out. You don’t have to wait until everybody but one guy (presumably Dave) dies before they start paying off. On the contrary, they start paying off right away–the classic tontine basically is a weird annuity. You pay a specified nonreturnable sum of money and receive an annual interest payment for the rest of your life. The twist is that the annual proceeds of the investment pool are divided among a smaller and smaller number of people as the participants die off. The last few people alive do very well indeed and the last guy makes out like a bandit. The last survivor of one French tontine received an annual income of 73,000 livres from an original investment of 300 livres. She was 96.
Though tontines are usually associated with the excesses of monarchy, life insurance companies in the United States tried a modified version after the Civil War. In tontine life insurance, part of each participant’s premiums bought conventional life insurance and the other part went into a tontine investment pool. After a predetermined period (usually 20 years), the tontine fund plus earnings was divided among the survivors.
