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Tontine

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TONTINE, ton-ten', a form of annuity or financial assurance in which gain accrues from survivorship. The word is derived from the name of Lorenzo Tonti, a Neapolitan who set tled in Paris in the time of Cardinal Mazarin and who invented this style of life annuity. Tonti proposed the system to the French gov ernment as a method of raising money and while the plan was not adopted, still it served as a model on which all future tontines were operated. The members of Tonti's association were to subscribe the sum of money needed by the government and were to receive life shares in the society. There were to be 10 classes of subscribers, according to their age, and for each class a fixed sum was to be divided yearly among the members of the class. When a member died his share was divided with the rest among the members of the class so that the death of each member benefited all those remaining, and the profit to the last few sur vivors in each class was enormous, while the sole survivor received the entire sum of inter est accruing to his class. Upon his death the interest ceased and the borrower obtained the capital. In 1689-92 the system was used by Louis XIV, who was sorely in need of funds. He organized a tontine with a capital of $70,000,000, which lasted for a period of 40 years. The sole survivor drew an annual in come of $367,500 from his original investment of $1,500. During the following century the tontine was frequently used in France and in Great Britain, and in at least one instance in the United States, in order to raise large sums of money. A disastrous private tontine in France, known as the "Caisse Lafarge? was established in 1791. When 60,000,000 francs had been subscribed into the company it was found that either through gross error or fraud the interest promised was an impossible one and the subscribers owing to the financial panic then prevailing lost not only their interest but their capital as well. The last public tontine

in England was opened in 1789 and the in terest, amounting to $210,150, was paid as late as 70 years after that date. The Irish tontines, established 1773-77, drew as many as 3,500 mem bers. Tontines in the United States were at one time popular as a means for raising money for the erection of large buildings. The New York Tontine Society, founded in 1790, was wound up 1870-78, while tontine buildings were erected in New York, New Haven, Albany and other American cities.

Although tontines in their old form were long ago abandoned by financiers, the tontine system as applied to life assurance has given rise to an important modification of the usual insurance policies. What is known as the ton tine dividend policy has the following distinc tive features: The holders of such policies constitute a class by themselves; they do not participate in profits until after the lapse of the tontine period, usually 10, 15 or 20 years; the representatives of the insured in case of his death before the commencement of the dividend period receive only the sum mentioned as the face value of the policy; no surrender value is allowed to anyone• who relinquishes his policy before the dividend period and all profits from whatever source are reserved until that period, when the accumulated dividends are to be equitably divided among the holders of such policies as are then in force. This form of policy is now in very little favor. Modifica tions from these general principles have been practised by various societies. For further in formation consult F. De Peyster's 'History of the Tontine Building) (1855). See INSURANCE.