Legal Definitions - tontine policy

Definition: A type of insurance policy where a group of people share advantages and upon the death or default of any participant, their advantages are distributed among the remaining participants until only one remains, who receives the whole amount. No accumulation or earnings are credited to the policy unless it remains in force for a specified number of years. This type of policy takes its name from Lorenzo Tonti, an Italian who invented it in the 17th century.

Example: A group of ten people purchase a tontine policy. Each person pays a premium, and the policy remains in force for 20 years. If any of the participants die or default during this period, their advantages are distributed among the remaining participants. After 20 years, the remaining participants share the accumulated funds, and the last person standing receives the whole amount.

Explanation: The example illustrates how a tontine policy works. The participants share the advantages, and the last person standing receives the whole amount. The policy only accumulates funds if it remains in force for the specified period. This type of policy is not commonly used today.