I am a partner with a subspecialty group of >30 physicians. The group is 100% physician owned. Our group has been approached with a "opportunity" an insurance company (Principal) is calling a business continuation plan, or at times a buy-sell plan. This is a combination whole life insurance policy and annuity.

**I would appreciate the WCI community input on my efforts to illustrate what this means for us and also for the company**.

The plan requires input of $38,000/year ($1,500/month from each partner and 20,000/year from our company on the partners behalf). It also requires a $2,750,000 but in from our company at the start. The partner would then receive an annuity payout (amount based on amount of time they pay in) and whole life insurance. Our company wants to make participating in the plan mandatory for all new partners. The payout is $100,000/year for as many years as you pay in from 4 to 10 years. After ten years, the annuity increases by $20,000/year for every additional two years, ex $120,000 at 12 years, $140,000 at 14 years and so on. The payments are cap at $250,000 which partners reach at 25 years, and paying into the program stops after 25 years. If you would like more information, please let me know and I will provide it if I can.

Using Excel, I have attempted to put numbers to this plan. For the theoretical future value of the investment on the partners behalf I used

=(FV(7%/12,"Years paying in"*12,

**-**$1,500,0,1))+(FV(7%,"Years paying in",

**-**$20,000,

**-**($2750000*0.033),1))

I assumed a 7% market return. the $2,750,000*0.033 is to represent the partners proportional share of the initial buy-in, each partner owns 3.3% of our company. This is supposed to represent the amount of money that would have accumulated at the time of retirement.

To represent the total value of the payout I used

=PV(2%, "years of payments",

**-**(payment amount, range $100k to 250k),0,1)

I assumed a 2% inflation rate for devaluation of the payments overtimes.

Lastly, I tried to calculate what it would look like if you did it yourself, took the amount we would have left over at retirement and paid the partners the annuity we are promised.

=FV(7%, "years of payments", (payment amount, range $100k to 250k),

**-**(Principal = to (FV of theoretical amount of money leftover at time of retirement which was calculated above),0) + PV(calculated above)

This produces the values in the table below. As I ran the numbers, the annuity pays more for partners who retire within the next 8 years, but after, the annuity payments lag. That lag becomes more than six figure in a few years, and ends up being several million dollars for those not retiring for 20 or more years.

First column, is years until retirement.

Second, is years paying IN, these two columns are the same expect for beyond 25 years.

Third, is monthly payment from each partner.

Fourth, is annual payment from our company for each partner

Fifth, is time of payments out.

Sixth, payment out amount.

Seventh, assumed rate or return

Eighth, assumed interest rate.

Ninth, amount after paying in. (calculation above)

Tenth, amount at time of retirement, should be the same as amount after paying in except for those beyond 25 years.

Eleventh, inflation adjusted total value of the annuity payout (calculations above)

Twelfth, total value you would achieve by doing it yourself (calculations above)

4 | 4 | $1,500.00 | $19,425.00 | 4 | $ 100,000.00 | 7% | 2% | $294,534.78 | $294,534.78 | $388,388.33 | $330,469.04 |

6 | 6 | $1,500.00 | $19,425.00 | 6 | $ 100,000.00 | 7% | 2% | $419,392.21 | $419,392.21 | $571,345.95 | $485,411.50 |

8 | 8 | $1,500.00 | $19,425.00 | 8 | $ 100,000.00 | 7% | 2% | $562,592.80 | $562,592.80 | $747,199.11 | $687,858.02 |

10 | 10 | $1,500.00 | $19,425.00 | 10 | $ 100,000.00 | 7% | 2% | $726,832.11 | $726,832.11 | $916,223.67 | $964,367.64 |

12 | 12 | $1,500.00 | $19,425.00 | 10 | $ 120,000.00 | 7% | 2% | $915,201.93 | $915,201.93 | $1,099,468.40 | $1,241,835.37 |

14 | 14 | $1,500.00 | $19,425.00 | 10 | $ 140,000.00 | 7% | 2% | $1,131,248.56 | $1,131,248.56 | $1,282,713.14 | $1,573,747.57 |

16 | 16 | $1,500.00 | $19,425.00 | 10 | $ 160,000.00 | 7% | 2% | $1,379,039.60 | $1,379,039.60 | $1,465,957.87 | $1,968,105.81 |

20 | 20 | $1,500.00 | $19,425.00 | 10 | $ 200,000.00 | 7% | 2% | $1,989,203.02 | $1,989,203.02 | $1,832,447.34 | $2,982,221.17 |

25 | 25 | $1,500.00 | $19,425.00 | 10 | $ 250,000.00 | 7% | 2% | $3,029,350.62 | $3,029,350.62 | $2,290,559.18 | $4,795,638.36 |

27 | 25 | $1,500.00 | $19,425.00 | 10 | $ 250,000.00 | 7% | 2% | $3,029,350.62 | $3,468,303.52 | $2,290,559.18 | $5,659,125.16 |

29 | 25 | $1,500.00 | $19,425.00 | 10 | $ 250,000.00 | 7% | 2% | $3,029,350.62 | $3,970,860.70 | $2,290,559.18 | $6,647,731.20 |

30 | 25 | $1,500.00 | $19,425.00 | 10 | $ 250,000.00 | 7% | 2% | $3,029,350.62 | $4,248,820.95 | $2,290,559.18 | $7,194,521.08 |

I prefer the presentation in graphic form because, below, I think it better captures the magnitude of difference.

Thank you for taking the time to read this.

**Those of us that objected to this plan have been given a meeting with our groups executive committee in just over a week**. The last thing I want to do as a young partner is present bad numbers. Please review my calculations and let me know if I made any errors.

Thank you for creating a forum where I could post a question like this, and thank you for all that you do.

#iknowwhathuntsyou

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