What is a Tontine
A tontine is 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. In this way, as an investment plan for raising capital, a tontine features characteristics of a group annuity and a lottery.
BREAKING DOWN Tontine
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 today.
The proceeds of the subscription were often used to fund private or public works projects. These projects would feature the "tontine" in their name from time to time. Several projects include:
- The Tontine Hotel in Ironbridge, Shropshire, stands prominently at one end of the Iron Bridge from which the town takes its name: it was built in 1780–84 by the proprietors of the bridge to accommodate tourists who came to view this wonder of the industrial age.
- The Tontine Coffee House on Wall Street in New York City, built in 1792, was the first home of the New York Stock Exchange.
- The first Freemasons' Hall, London. Subscribers were able to nominate someone other than themselves as the person on whose life the share was staked. On the subscriber's death, they could leave their share to that person, or to anyone else. The scheme raised £5,000, but cost £21,750 in interest over its 87-year life.
, in an episode titled "Raging Abe Simpson and His Grumbling Grandson in "The Curse of the Flying Hellfish"" (1996), Grandpa Simpson and Mr. Burns are the final survivors of a tontine to determine ownership of art looted during World War II.