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Disability and Loss of Value Policies for Athletes

Elite college athletes often have a difficult decision to make—turn pro or stay in school. Most commonly in football and men’s basketball, athletes are permitted to purchase disability and loss of value insurance policies to protect themselves from injury. The NCAA permits athletes to receive up to $10,000,000.00 in coverage. These policies, however, are very expensive and can cost in excess of $50,000.00. Thus, athletes are left with a difficult choice to make. Without insurance coverage an athlete potentially risks his future compensation.

It is important to note that disability policies and loss of value policies do not coverage the same thing. A disability policy (commonly “permanent total disability”) means an insurance policy that protects an athlete from injury or illness that occurs during the policy period that prevents the athlete from permanently and continuously engaging in the sport. Whereas, a loss of value policy protects an athlete from injury or illness that occurs during the policy period that causes the athlete’s draft position to fall. In both policies, the insurance coverage requires that disability and/or loss of value be “solely and directly” the result of the injury or illness.

The insurance carrier, in theory, has trained individuals who evaluate the athletes potential draft position prior to the season that is covered by the insurance policy and makes a determination where the athlete will likely be selected. Being that the NFL, NBA, and MLB now have rookie wage scales and slotted compensation, it is not difficult for the insurance carrier to make a determination of the compensation an athlete will likely receive. Typically, the amount of the policy issued is 50-60% of the athlete’s projected rookie compensation with maximum coverage in the amount of $10,000,000.00. For example, if an athlete’s rookie contract is scheduled to be $10,000,000.00, the policy will likely be for $5,000,000.00-$6,000,000.00.

Over the last three (3) years, there have been several claims that have been denied by insurance carriers that have resulted in litigation. The common themes in these cases and the basis for denial are usually one of the following: 1) the athlete failed to disclose a previous injury on his insurance intake form; 2) the athlete’s injury or illness was not the “sole and direct” cause of the disability or loss of value; and 3) failure to disclose medical information. In one case, the insurance carrier argued the athlete’s draft position fell not as a result of injury, but because he play played quarterback in a spread offense rather than a pro-style offense. Such an argument was odd being that the insurance carrier offered coverage based on the athlete’s performance in the same offense.

When presenting a claim to an insurance carrier, it is very important that the athlete closely follows the procedures set forth in the policy and fully and accurately reports the injury on the necessary forms. In many cases the insurance carrier will deny a claim in hopes that the athlete will lose interest and not force the issue further. If an insurance carrier denies a disability or loss of value claim, it is imperative that the athlete engage a skilled lawyer with knowledge of these policies to review the claim. Otherwise, an athlete may pass up substantial funds that he is entitled to receive. Additionally, if the athlete paid for policy (versus his institution paying for the policy on his behalf), the insurance proceeds are tax free money.

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