No. of Recommendations: 14
I would join the tontine, but (1) I'm too young and (2) I've read too many philosophy books and mystery novels to trust the other parties in a tontine.
Funny, isn't it?
That's the main reason for hesitation for most potential participants, and many a naive regulator too.
(contrary to common wisdom, they're only banned in 1.5 US states)
Yet the fear is irrational: there isn't a single historical tontine-motivated murder case to be found.
That's despite half of all US households having a tontine in the late 1800s. The reason? They're a great idea.
Besides, the motivation for bad acts is even higher with ordinary life insurance policies, where you only have to off ONE person.
They weren't wound down or banned because of murder, but because they were popular long before trustees got audited or regulated.
Sponsors tended to simply ran off with the money.
Secondarily because many of them unwisely had a guaranteed coupon, which isn't sound without a whole lot of spare capital, which was not required or even checked.
Consequently some honest but mathematically primitive sponsors simply couldn't meet the payments they had guaranteed and went bust.
Including King William, I guess.
The modern edition can't go bust and needs no spare capital, as it skips the minimum coupon.
Each time a member croaks, the assets corresponding to his/her share are liquidated and paid to the remaining shareholders in proportion to their shareholdings.
No deaths, no payments, which is why the payment stream is irregular. But it can't ever run short of money.
I would propose to liquidate and pay out the remainder when the number of living annuitants gets down to 10.
If you get a cheque for a gazillion bucks at age 104, you can probably buy a pretty fine annuity with the cash, so the lack of more payments won't be an issue.
Secondarily, for marketing purposes, that raises to 10 the minimum number of murders for a bad guy to benefit!
Cool historical note: just like any mutual fund sponsor, Mr Tonti's original scheme charged an annual management fee on assets under management, of 0.125%.
As for your age objection, we can have entirely separate funds for different age ranges : )
Mr Tonti did the same.
Some people have proposed doing adjustment factors to make it fair for participants of all ages, but that starts down the road of mortality calculations and regulated capital buffers and risk.
I like the simple "mutual inheritance scheme" approach. It's incredibly easy to explain and understand, and no spare money is ever needed.
Jim
