Tontine

What Does Tontine Mean?

A tontine is a financial arrangement where a group of participants pool their resources and receive shares or dividends from the investment, but are not allowed to reclaim the capital they contributed. This pooled-income idea is a distant ancestor of how modern annuities work, where buyers also exchange a lump sum for income they cannot fully take back as capital. When a participant dies, their shares are redistributed among the remaining survivors, increasing the share of each individual. The last surviving participant receives the entire pool of resources invested in the plan.

Insuranceopedia Explains Tontine

This scheme is attributed to and named after the Italian banker Lorenzo Tonti.

The plan is often considered Darwinian, as the last surviving investor claims all the money. In some cases, governments would collect the remaining resources from tontine plans after the last investor passed away.

For many years, tontines were regarded as a form of life insurance. Today, the role tontines once played has been taken over by permanent life insurance, which pays a guaranteed benefit to named beneficiaries without the winner-takes-all element. However, they are rarely practiced today and are even illegal in some parts of the United States.