What Is a Tontine?

What Is a Tontine?

Let me tell you about tontines—they're an old-school way to raise capital where people like you and me put money into a shared pool, and we get dividends based on how the investments from that pool perform.

As members die off, no new ones join, so the money gets split among fewer people. That means survivors benefit from others' deaths, which many folks found pretty grim.

Understanding a Tontine

Tontines might seem strange now, but they've been around for at least 500 years. The name comes from Lorenzo de Tonti, a 17th-century Italian financier. It's unclear if he invented it, but he pitched it to the French government under King Louis XIV to raise cash.

Historians think the idea came from Italian financial practices. It didn't take off right away, and Tonti ended up in the Bastille.

A few decades later, in the late Middle Ages, tontines spread across Europe as a way for kings to fund wars without raising taxes—they borrowed through tontines instead.

At their peak in the 1900s, tontines made up nearly two-thirds of the U.S. insurance market and over 7.5% of the nation's wealth. By 1905, there were about nine million policies in a country with just 18 million households.

Fast Fact

Tontine insurance policies got banned in the United States in 1906.

Tontine Process

As an investor, you'd pay a lump sum upfront—think of it like principal, but you never get it back—and receive annual dividend payments until you die. When someone dies, their shares get divided among the survivors.

This setup is like a group annuity mixed with a lottery. The longer you live and the fewer others survive, the bigger your payments. The last survivor gets the whole dividend. When everyone's gone, the tontine ends, and usually the government takes what's left.

Important

In most U.S. places, using tontines for capital or lifetime income is legal, but old laws in two states create the wrong idea that they're illegal nationwide.

Tontines in the United States

In 19th-century America, tontines boosted life insurance sales a lot. Historians say they basically built the insurance industry here. Popular culture highlighted both their appeal and dark side—writers like Agatha Christie, Robert Louis Stevenson, and P.G. Wodehouse had stories of tontine members plotting murders for the payout.

Early on, Alexander Hamilton suggested tontines to cut national debt. His version capped payments when survivors hit 20% of the original group—they'd get dividends, but no increases from further deaths. Congress ignored it.

Tontines rose fast but fell just as quick. After 1900, big embezzlement scandals in insurance erased them from U.S. memory.

A Second Glance at Tontines?

These days, financial advisors, academics, and fintech companies are saying we should revisit tontines. Take Moshe Milevsky from York University's Schulich School of Business—he wants them back because they offer annuity-like income, but with higher yields due to low costs and structure, plus more for survivors.

Tontines could handle longevity risk—the chance you'll outlive your savings. Advocates point out that with blockchain and automation, modern tontines would be transparent and less prone to fraud. The market could be as big as life insurance, especially for baby boomers missing pensions.

Instead of murder mystery fodder, a new tontine might fund your retirement years. It could even help companies bring back pensions safely and cheaply. Some say the tontine's fall led to corporate pensions rising. Milevsky called it the 'iPhone of retirement products' in 2015.

Most people don't have pensions anymore and aren't big on annuities for retirement. Retirees often rely on slim savings and Social Security. This has folks looking for options.

Annuities have lost favor because people worry about dying before seeing returns. Tontines focus on the group's mortality, not yours, which is easier to handle. They have lower fees and higher payouts, and while payments aren't fixed, they won't drop.

With lower costs and potential for growing payments, tontines are worth reconsidering. At minimum, proponents say you should have the choice to join one.

Real-World Examples

Tontines often funded projects via subscriptions, and some buildings even carried the name.

The First Freemasons' Hall, London, 1775

In 1775, English freemasons used a tontine to build the first Freemasons’ Hall in London, called the Freemasons’ Tontine. Today, it's the United Grand Lodge of England, home to over 200,000 members and open to the public for tours and events. It's also rented for films, conferences, and shows.

Investors were mostly property owners, professionals, and merchants—mainly men, but with some widows and spinsters. It raised £5,000 at 5% interest, paying £250 annually.

This tontine was organized, with a prospectus, register, history, and subscriber list. Unusually, records survived its 87 years from 1775 to 1862.

The Tontine Hotel in Ironbridge, Shropshire, United Kingdom, 1780

Architect John Hiram Haycock built the Tontine Hotel in 1780 using a tontine. It's near the Iron Bridge over the River Severn, the world's first major cast-iron bridge from 1781, now a World Heritage Site closed to traffic.

The hotel was for tourists visiting the bridge and meetings for industrialists. Today, it offers bed and breakfast, a bar, and restaurant, popular with couples and families— no creepy vibes from its tontine roots. It's a short walk from Ironbridge center, about 30 minutes from Shrewsbury and Wolverhampton.

The Tontine Coffee House, New York City, 1793

The New York Stock Exchange started in 1792 with 24 men under a buttonwood tree on Wall Street, creating the Buttonwood Agreement.

They moved to the Tontine Coffee House, built in 1793 with a tontine selling 203 shares at $200 each. By 1817, it evolved into the NYSE and relocated.

It was a hub for stock trading, deals, debates, and social gatherings, home to the Merchants Exchange and featured in memoirs and news.

The building survived the 1835 Great Fire but was demolished in the 1850s. The tontine ended in 1870 with the last death, but disputes delayed sale until 1881, fetching only $138,550—less than expected.