Athletes or Universities Buying Loss of Value Insurance? What You Should Know

“How much am I worth?” This question has been the subject of many motivational talks, presentations and books. Worth is a question and a concept that takes on so many forms—including self-esteem, legacy value and net worth. To achieve some sense of life worth is many people’s ultimate ambition, and it is a noble one.

For prospective and current pro athletes, knowing one’s worth wears a much more literal and monetary face. It equates to dollar signs and essentially it is the answer to the question: How much am I likely to earn in my first year and beyond as a pro athlete? This figure is determined by a variety of considerations:

• Past and present athletic performance
• Likely or existing endorsements
• Elitism, with respect to bidding

Even as athletes’ salaries and endorsement deals skyrocket from existing contracts, the risk of an illness or career-ending injury damaging earning potential skyrockets. Unfortunately, there is a positive correlation between earning power and the fear of losing it unexpectedly.

The possibility of losing money due to a sudden drop in slot or draft value presents a real threat to many elite high school and college athletes. While the fear of a disabling illness or permanent injury in a way that ends one’s ability to play professionally, always looms, loss of value is often more common.

An Overview of Loss of Value Insurance

Loss of value means that you—a prospective or current professional athlete—are still able to play professionally, but your value as an athlete has diminished. This means that the value of your future contracts are less than the former contracts you’ve signed or might have signed, due to an injury or illness.

If you were once a top draft pick, highly in demand, hoping to be richly compensated, and your value decreases due to an illness or injury, this reduction is known as a loss of value (LOV)—literally meaning that you, as a player, are not as monetarily valuable as you once were.

Many of the nation’s best high school and college athletes, along with smart colleges and top universities have turned to loss of value insurance to provide some protection against a later, unexpected reduction of value due to an illness or injury. Loss of value insurance can provide a remedy, but its reliability and effectiveness is hotly debated.

Consider Jake Butt, a loss of value insurance success story: Butt was the Michigan tight end who in January 2017 was the latest of a handful of college athletes to collect on loss of value insurance. Butt took out a $2 million loss of value rider on his $2 million permanent total disability insurance policy before suffering an ACL injury in Michigan’s Orange Bowl loss to Florida State. After his injury, the Denver Broncos picked him up in the fifth round of the NFL draft, and his policy—which took effect in the middle of the NFL draft’s third round—paid out about $543,000 tax-free.

This example shows how loss of value insurance should work: In the event that you—a prospective pro-athlete—suffer a loss of value, the insurance should subsidize the dollar amount of your contract up to a predetermined amount, returning your value to the amount it would have reached but for your illness or injury.

For Jake Butt, loss of value insurance worked, but it is not a good fit for every student-athlete or college because not all loss of value insurance policies are created equally.

Here are some things to consider, and some questions every top high school or college draft pick or university should ask, to determine whether LOV insurance is right for them.

What Is Loss of Value Insurance, and Where Can I Buy It?

As mentioned, LOV insurance is intended to protect elite student-athletes against the risk that their draft stock will slip because of an injury or illness, which could result in a smaller signing bonus and pro contract than they would have earned before the illness or injury.

During the policy’s designated coverage period, LOV insurance covers the difference if a student-athlete’s future contract value decreases below a predetermined amount due to a significant injury or illness suffered during that time. It is typically purchased for the year leading up to the top athlete’s draft eligibility. It requires medical underwriting, and, like other types of insurance, includes limitations or exclusions for certain pre-existing injuries, illnesses, or other performance-related realities. These could include:

• Osteoarthritis or degenerative conditions
• Drug and alcohol use
• Criminal acts
• Mental, nervous, or psychological disorders
• Off-field issues and injuries, including team morality clauses
• Poor performance during the season
• Poor performance at pre-draft events, including combines
• A rise in the draft value of other athletes due to superior performances, etc.

LOV insurance coverage is available as a rider on a permanent total disability policy. The NCAA offers its own permanent, temporary disability (PTD) insurance through the Exceptional Student-Athlete Disability Insurance Program, but historically, has not offered loss of value insurance.

Therefore, student-athletes or universities who view LOV insurance as a viable option for themselves or their athletes’ future income protection—must purchase coverage through a private insurance company that specializes in this coverage, such as International Specialty Insurance. Other companies that offer LOV insurance include Lloyd’s of London (one, if not the, most popular underwriters in the industry), and others.

How Does It Work and Who Is Eligible for It?

According to the NCAA, to determine the athlete’s eligibility for LOV coverage, insurance underwriters will estimate an athlete’s likely draft position. If the student-athlete is projected as a top-round draft position, underwriters can offer coverage ranging from $1 million to $10 million. The loss of value protection is typically 50 to 60 percent of the athlete’s projected rookie contract.

If the contract an athlete signs falls below this percentage as a direct result of a covered injury or illness suffered during the policy period, the LOV insurance will pay them the difference between the actual contract’s value and the policy’s predetermined value.

In theory, all college athletes within a certain range of draft positions are eligible, but the NCAA recommends that only projected top draft picks purchase LOV insurance. Athletes with lower projections may have a hard time proving their projected values if they need to file an LOV insurance claim, and may see their claims rejected as a result.

What Does LOV Insurance Cost, and How Can One Pay for It?

When high school or college athletes or universities opt to purchase loss of value insurance riders, their premiums can increase by an estimated $4,000 per every $1 million of insurance coverage. This amount is added onto the existing $7,500 (or more) premium per $1 million of permanent total disability insurance that the NCAA offers. Premiums from reputable insurers vary depending on the coverage and athlete.

For example, ESPN reports that Jake Butt’s LOV coverage, purchased from International Specialty Insurance, cost an estimated $25,000. Several options can help eligible student-athletes or their college or university fund their premiums.

• The college or university funds the premium
• Of course, student-athletes and their families can pay for it out of pocket, though this option is often unfeasible due to cost.
• In 2014, the NCAA created a waiver that allows athletes to borrow against their future earnings to cover LOV insurance premiums—an option previously reserved for funding permanent total disability insurance. Athletes must pay off the loan in full after signing a pro contract or endorsement deal.
• The NCAA also began allowing its member institutions to use the NCAA Student Assistance Fund to pay for eligible athletes’ purchase loss of value insurance—an increasingly popular practice.
• Combinations of these options are the most popular way of funding premiums: a combination of bank-loaned money, personal funds, and money from the college or university’s Student Assistance Fund.

Despite a myriad of options to assist eligible college athletes legally, athletes cannot seek premium funding from just anywhere. NCAA bylaws prohibit an agent, advisor, or financial advisor from loaning the student-athlete money to purchase a policy. Instead, athletes must borrow from established, accredited commercial lending institutions—in the event that the athlete (and his/her family) cannot afford the premiums out-of-pocket.

What Other Questions Should I Ask to Ensure the Best Possible Coverage?

As with most types of specialty athlete insurance, loss of value coverage is not one-size-fits-all. Athletes should consider the following questions when looking for the right policy:

1. What are the features, advantages and benefits of the different policies offered?
2. What are the provisions, restrictions, limitations, and common exclusions on the table?
3. Why is the policy definition language so important, and what terms and premiums are negotiable?
4. Which factors or conditions are excluded from coverage categorically?
5. How does my policy define injury, illness and disorders?
6. Who can the athlete, family, or university turn to, so a proper and thorough evaluation of the proposed coverage is obtained and zealous negotiation of policy terms along with meticulous application attention is given?

The NCAA provides the following definitions of injury and illness, and they offer insights into how these terms are typically defined in policies (with slight variations):

Injury: Bodily injury sustained by the insured athlete during the period of this insurance which requires medical treatment by a physician, and has negatively affected the insured athlete’s skills in a manner that causes substantial and material deterioration in his ability to perform in his occupation.

Illness: Illness first manifested in the insured athlete during the period of this insurance which requires medical treatment by a physician, and has negatively affected the athlete’s skills in a manner that causes substantial and material deterioration in his ability to perform in his occupation.

Was Your LOV Claim Wrongfully Denied? DarrasLaw Can Help!

Most student-athletes are overwhelmed with permanent total and LOV coverage and the application process. Insurance companies and underwriters will bank on your failure to ask the right questions and talk to the right people. You have nothing to lose and everything to gain by contacting the top-rated disability insurance law firm of DarrasLaw.

We have helped high school, top college, pro athletes, teams, colleges, and universities on what to buy, how to buy it, filling out a bulletproof application, and litigating if the carrier wrongfully delays or denies benefits.

Loss of value insurance coverage should protect you if an illness or injury disables you in a way that your policy covers. Disability insurance companies do wrongfully delay or deny legitimate LOV claims. DarrasLaw can help!

Even if you haven’t experienced a wrongful LOV claim denial, you may have more questions about your permanent total disability policy and its provisions and limitations. Your college or university’s athletic compliance department may have application questions or policy language concerns, especially if they are funding all or part of the policy premium. Our founding partner, Frank N. Darras, helps the athlete, their family, the college and university, or the pro and his/her agent wade seamlessly through the application and claim issues. Please reach out. Initial consultations are always free—which can include a policy analysis.

At DarrasLaw, our seasoned disability insurance lawyers—led by America’s top disability insurance lawyer, Frank N. Darras—have seen more, evaluated more, and resolved more disability insurance cases than any other firm in America. If your insurer lets you down, we are here to fight for the disability benefits you deserve. We can offer immediate help. We understand that life events can hurt your future income suddenly and unpredictably; we are here and able to assist. We evaluate cases and offer free help throughout the United States.

Call us today at 800-898-7299 or email us to schedule your free policy analysis or claim consultation.