A Straight Dope Classic from Cecil's Storehouse of Human Knowledge

What's with tontines, the odd annuities in which you benefit when others die?

June 26, 1992

Dear Cecil:

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?

Cecil replies:

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 only one guy (presumably Dave) remains alive 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.

Tontines were dreamed up by a 17th century schemer named Lorenzo Tonti and were adopted by the perennially cash-strapped French court as a way to raise money. Tontine subscriptions were sold to the public, with the participants divided into age groups to make it more sporting. After everybody died off, the original investment was turned over to the crown.

Ten tontines were raised in pre-revolutionary France; the most successful raised 47 million livres. But they were a nightmare to administer and the big pot of cash was an invitation to steal, leading the crown to partially repudiate the last tontine in 1770. The resultant uproar, some argue, helped pave the way for the revolution of 1789.

The idea behind tontines was the same as that behind today's state lotteries: the government was trying to raise money by appealing to people's gambling instincts. The disadvantages for investors were pretty obvious. Even if the tontine were properly run, by the time the number of surviving investors shrank to the point that they were raking in big money, most were too creaky to enjoy it.

What's more, since payments halted on the investor's demise, a tontine left you with nothing to pass on to your children, the major selling point of ordinary life insurance. On the other hand, tontines did offer the benefit that the older and more decrepit you got, and thus the more in need of expensive care, the higher your income usually climbed.

Though tontines are usually associated with the excesses of monarchy, a modified version was tried by life insurance companies in the United States 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.

The scheme proved wildly popular and is often credited with the life insurance industry's rapid early growth. But it was made illegal in New York in 1905 and later in other states, mainly because of corruption and fraud. Still, some historians say the fundamental idea was sound. I'll admit it sounds like a lot more fun than conventional life insurance; who knows, it might even have encouraged flabby Americans to watch out for their health to ensure they survived long enough to get a share. On the other hand, it does put you in the macabre position of rooting for your contemporaries to die — and of course some might be inclined to do more than root. My feeling is that if you do join Dave's little club, be sure you don't attend any reunions at isolated sites.

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