For the sake of argument, let’s limit this to countries where tontines are actually illegal ;).
I read Cecil’s article on the subject and it simply mentions that they were outlawed due to “corruption and fraud.”
If I had to guess, it’s because tontine fraud is involves murdering other people, while life insurance fraud requires faking one’s own death. I reckon the former is easier to get away with than the latter, and so tontine fraud was presumably more prevalent than life insurance fraud is.
That’s my WAG, though. Does anyone have anything more concrete?
I would also just go with the idea that a tontine just kind of “feels wrong” morally, it’s also more like gambling than life insurance is, so people against gambling which is illegal many places would also be against tontines.
There is an idea that the interest accumulated in a tontine could bankrupt a nation. I think has been disproven. Perhaps the concept is just distasteful, it does resemble insuring someone that you have no insurable interest in since you have no idea if your own progeny would end up as the survivor.
TriPolar’s point about life insurance is right. There is a good chance that your life insurance policy will be worth less than what the insurance company pays out for it. If insurance companies were paying out more than they took in and earned on interest, then they wouldn’t be in business.
It’s kind of a bet, sure. But not nearly as much of a gamble as the tontine is.
My first thought was Cecil’s article, but I didn’t see anything there. The only thing I can recall at the moment was that the known tontines had not done so and didn’t have a chance of doing so even if all the participants lived to be 100. Something may jog my memory about this. Obviouly enough money in any such scheme could exceed a nation’s ability to cover the check in the end if it goes on long enough, or the economy of that country got bad enough. The idea of paying these things out all through the lifetime of the partcipants would reduce any danger. Also, Cecil doesn’t mention anything about this in his article, but bankrupting a national treasury was the only reason I heard for banning this scheme when I first learned of it from watching The Wrong Box.
Life insurance gives (usually) one person (the beneficiary) an incentive to commit one murder (and, usually, that will be murder of someone they love and who they know loves them, and so probably will not murder). A tontine gives several people (everyone in the tontine) an incentive to commit multiple murders (of everyone else in the tontine, none of whom necessarily have any particular emotional attachment to one another).
My understanding was that buying life insurance on a complete stranger and listing yourself as a beneficiary is, in fact, illegal (or at least not permitted). And isn’t that sort of what a tontine is like?
That’s correct. You are only allowed to buy insurance covering your loss. If Joe Random dies it doesn’t affect you, so there is no loss to be insured.
If so, they are only being insured on the cost of lost productivity and hiring a replacement. They are not allowed to buy sufficient insurance that they can profit from your death, only break even.
You may be correct about the law governing life insurance, but the situation you envisage is not really much like a tontine. The members of a tontine will normally have all agreed to be in it, and will all pay money into it. Then, the last surviving member gets the lot (which may, or may not, have been grown through investment in the meantime).
As I said before, life insurance (whether taken out on a stranger or a close family member) provides a potential motivation for one person, the beneficiary, to commit one murder; a tontine potentially provides strong motivation for several people to commit several murders. It is not a very good idea.
From a comic I read once, I think it was a “Wizard of Id”:
Person: So what is life insurance?
Agent: That’s where we bet that you’ll live long enough to give us more money than you’ll get in return.
Person: What if I die young?
Agent: Then you WIN!
Note that viatical settlements, in which someone covered by a life insurance policy assigns to a third party the right to the death benefit in exchange for an upfront payment, are permissible.
And normally this has been applied only to very high-level “key” employees that would be hard to replace. The fact that Wal-Mart took insurance out on every cashier was considered bizarre and scandalous.