Legal Definitions - tontine

Definition: Tontine is an investment plan where people buy shares in a common fund and receive a regular payment. The payment increases every time a participant dies. When a participant dies, their share is split between the surviving shareholders in the pool. The investment ends when the number of surviving shareholders reaches a previously agreed on, small number.

Example: Let's say there are 10 people who invest in a tontine. Each person puts in $10,000. They agree that they will receive a payment every year. The payment starts at $1,000 per year and increases by $100 every time someone dies. If one person dies, the payment becomes $1,100 per year. If two people die, the payment becomes $1,200 per year, and so on. When there are only two people left, they split the remaining money.

Explanation: This example shows how a tontine works. The investors put their money into a common fund and receive a regular payment. The payment increases every time someone dies. When there are only two people left, they split the remaining money. This is how a tontine investment comes to an end.