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Loss-of-value white paper: executive summary

What exists

There are now two insurance products available to help student-athletes protect potential future earnings in the face of severe injuries during their college career. The first is a permanent, total disability policy. The NCAA offers this coverage through its Exception Student-Athlete Disability Insurance program. The second is a loss-of-value policy, which is not now offered by the NCAA.

What is covered

Permanent total disability policies, often referred to as PTD, protect a player who suffers an injury or illness during the designated coverage period which prevents the player from ever competing as a professional athlete (i.e., must be a career-ending injury or illness). PTD coverage is 24-hour accident and sickness coverage that includes the playing and practicing of the player’s sport. The benefit amount (usually payable in a lump sum) and pricing is determined by insurance underwriters based on the sport, projected draft position and injury history.

Loss-of-value policies protect the player’s future contract value from decreasing below a predetermined threshold amount from a significant injury or illness suffered during the designated coverage period. The insurance industry mandates that loss-of-value coverage must be purchased in conjunction with PTD coverage and is typically purchased for the year prior to the player becoming draft-eligible. Similar to PTD coverage, loss-of-value insurance offers 24-hour coverage, and medical underwriting is required. Exclusions for specific pre-existing injuries or illnesses may apply.

How loss-of-value insurance works

  1. Determine eligibility: The insurance company will determine eligibility based on the player’s projected draft status. Only those players projected at the very top of the anticipated draft (e.g., top five or 10 positions) should even consider purchasing loss-of-value coverage. Players projected below that will realistically never collect on a loss-of-value claim.
  2. Set threshold: The insurance company will set a loss-of-value threshold, which is typically 50-60 percent of the projected rookie contract.

Example:    

  • Player’s projected rookie contract is four years, $10 million
  • Projected rookie contract x 60% = loss-of-value threshold
  • $10 million x 60% = $6 million total loss-of-value threshold
  • $6 million/four years = $1.5 million annual loss-of-value threshold
  1. Determine benefit: Any benefit payable under a loss-of-value policy is determined by the contract offered.
  • If the maximum contract offer received by the player is less than the threshold amount, solely and directly as a result of a significant injury or illness, the player could be eligible for a loss-of-value benefit.

Example:

  • Projected rookie contract is four years, $10 million total
  • Loss of value threshold is four years, $6 million
  • Player is offered a rookie contract of four years, $5 million
  • $6 million threshold - $5 million offer = $1 million loss-of-value benefit
  • If the maximum contract offer exceeds the threshold amount, the player is not eligible for a loss-of-value benefit.

Example:    

  • Projected rookie contract is four years, $10 million total
  • Loss-of-value threshold is four years, $6 million
  • Player is offered a rookie contract of 4 years, $7 million
  • $6 million threshold < $7 million offer = No loss-of-value benefit payable

Best practices for purchasing coverage

  1. Determine if this coverage is right for the student-athlete. Only the very top prospects have a realistic chance of ever collecting on a loss-of-value policy. 
  2. You get what you pay for. Any company offering a $10 million policy for less than $1,000 is not selling a valuable product. The likelihood of ever collecting on a claim under this type of policy is slim. The annual premium for a quality PTD and loss-of-value policy ranges between $10,000 and $20,000.
  3. Buyer beware. Is the agent selling the policy licensed in your state? Do you know the terms and conditions of the policy, especially the definitions and exclusions?
  4. Do your homework. Get multiple quotes from multiple insurance companies. Ask a lot of questions and make sure you understand all terms, conditions, definitions and exclusions. Ask for terms or exclusions that you don’t like to be removed.
  5. Provide all required information. Make sure your application is complete and accurate.  Err on the side of being over-inclusive when disclosing medical history. Make sure the student-athlete is involved in the application process, and never sign a blank application that will later be completed by anyone else (e.g., a coach, parent, trainer or insurance agent).

    Insurance companies have denied claims based on inaccurate or incomplete application data. These denials occur even when the inaccurate or incomplete item had nothing to do with the claim.

This report is intended for informational purposes only and should not be used as a solicitation or an offer to buy insurance.