DEFINITION of 'Tontine'

A system for raising capital in which individuals pay into a common pool of money and then receive a dividend based on their share and the performance of investments made with the pooled money. The principal invested in the tontine is never paid back to the investor; rather the investor receives dividends until his or her death. If a "shareholder" dies, his or her shares are divided up among the surviving investors.


This system is attributed to Lorenzo de Tonti, a 17th century Italian banker. Government-sponsored tontines paid dividends while investors were alive, but once all the investors died the government would absorb all the remaining capital. Tontines were used in the United States as a way of increasing the sale of life insurance in the 19th century, but have fallen out of use and are illegal in many parts of the country.

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