Yes, it's true that we wouldn't need the financial resources of an insurance company in order to guarantee the payments, provided the promise is only that the survivors will get whatever money is in the pot. But one aspect is that the participants have put money into a contract and they have purchased items of value (the stripped TIPS) in common with others. Each participant's share has value but it is unusual in that it cannot be passed on to heirs. To me, the product most like this is an annuity, and those are run by insurance companies. Probably, since the deep pockets of an insurance company wouldn't be required, skilled lawyers could write a contract that does the same thing.I'm not sure why you need an insurance company for your idea. A mutual fund company could sponsor the same thing. (You would need an insurance company if the sponsor guaranteed that if less than x% of the buyers actually died, then sponsor would make payments as if x% had died.)
Aspects I like:
-- My expected "take" at age 85 would not be dependent on the vagaries of the market. Large group mortality is a lot more predictable than equity returns.
-- The payoff is not dependent on the promise of a private company to make good on their promise 34 years later.
-- I will defer the decision on whether to buy an annuity until I have better information. If I'm in very poor health when I get the payoff, I'll use the money for a big bash and/or give it away. If I'm healthy I can buy an annuity to assure it lasts as long as I do.
According to this paper, (from 2009, pg 514) only Louisiana and South Carolina specifically prohibit tontines, so maybe it's not a legal impossibility to do something like this.BUT, the common wisdom is that "tontines are illegal in most states". I've never pursued the issue to determine when a legal annuity becomes an illegal tontine.