Tuesday, May 28, 2013

What the Heck is a Tontine?

I love vocabulary words, so I subscribe to Merriam-Webster's Word of the Day.

May 26th's M-W Word of the Day was "tontine," which is defined as "a joint financial arrangement whereby the participants usually contribute equally to a prize that is awarded entirely to the participant who survives all the others."

When I read that definition, I couldn't help but think of The Simpsons' episode in which it was revealed that Abraham "Grampa" Simpson was part of a tontine arrangement with the other members of his World War II military squad, the Flying Hellfish.  Under the terms of the Flying Hellfish's tontine, the last surviving member would inherit all of the valuable paintings found by the squad during the war.  Grampa Simpson and Montgomery Burns were the last two surviving Flying Hellfish, so Mr. Burns ordered Grampa's assassination.

The M-W Word of the Day entry says that tontines have been banned because, as with Mr. Burns, "there was just too much temptation for unscrupulous investors to bump off their fellow subscribers."

Reading that assertion got me wondering if Texas has any laws against tontines.  Well, I have some bad news for the Flying Hellfish.  I was able to find at least one such provision.  Section 3.122 of Title 28 (Insurance) of the Texas Administrative Code provides as follows:

"Any life insurance policy which is a tontine policy or which contains a tontine provision will be disapproved. Provisions by which dividends during the participating period are not allocated or paid annually are prohibited as being within the tontine principle unless the policyholder acquires, on termination of the policy, a vested interest in the dividends which have accrued."

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