Tontine

A pooled investment in which surviving members share the payments of those who die, named after Lorenzo de Tonti.

Overview

Neapolitan banker Lorenzo de Tonti proposed the scheme to Cardinal Mazarin in France in the 1650s as a way to raise government funds, and the French state launched its first tontine in 1689. Investors paid into a pool and received annual payments, with each death increasing the share of survivors until the last member received the whole income. Governments in Britain and elsewhere used them to finance wars. In the United States, tontine life insurance policies that deferred dividends to persisting policyholders became hugely popular in the late 19th century, until the Armstrong Investigation of 1905 exposed abuses and New York effectively banned them. Economists have recently revisited tontine-like pooling as a low cost source of retirement income.