More than 200 players will be selected in this week’s NFL draft, marking a turning point in both their professional and personal lives that also brings added liability with increased income and fame.
First-round picks in particular will make millions of dollars as the 2017 draft reminded us, with the first overall pick expected to make a minimum of $30 million. Drafted players will need to consider insurance policies to help deal with the sudden influx of income and rise in recognition.
“Once a young athlete comes into this kind of money, it can be difficult for him or her to become insured,” said Bill Gatewood,Corporate Vice President, Director, Personal Insurance, Burns & Wilcox, Corporate Headquarters. That is because these individuals tend to be high-risk – they are not used to having money and may not know how to handle it.
A Personal Umbrella policy is recommended for wealthy individuals who are known public figures, as it can supplement an athlete’s current policies to limit exposure to crippling financial losses in the event of a liability claim or lawsuit.
In addition, Sports and Entertainment Insurance can help athletes, as well as other public figures and high-net-worth individuals, secure death and disability coverage in excess of $100 million and “disgrace” coverage in case of an off-field or personal issue of up to $50 million.
“Insurance specialists should have the best interests of the athlete in mind throughout this process, which is why athletes should consider purchasing an Umbrella policy before or shortly after they are drafted as part of their financial plan,” said Jim Convertino, a director with the Professional Athletes & Entertainers Insurance Solutions Practice at McGowan Insurance in Ohio. Convertino’s firm partners with Burns & Wilcox to provide insurance policies to hundreds of professional athletes. Umbrella coverage can protect an athlete against high-profile liabilities, Convertino said.
Sports and Entertainment coverage exists to cover injuries and accidents outside of the field of play, such as the case of former basketball star Jay Williams, who sustained career-ending injuries in a 2003 motorcycle crash while in the second year of a $16 million contract with the Chicago Bulls.
“We try to guide athletes to create a liability firewall to help protect them as much as possible,” Convertino said. “Whether it is considering an Umbrella policy or providing as much education to the athlete and his or her family as possible, it is our role to guide the athlete given the other responsibilities they have.”
Athletes, for instance, are a prime target for predatory lawsuits. “If you’re rear-ended and the other person is at fault, the general perception is you can get more money from LeBron James than from an ordinary Joe,” Gatewood said.
Loss of Value policy adds early protection
A Loss of Value (LOV) policy covers aspiring professional athletes expected to be high draft picks – most often in football, basketball, baseball and hockey – against injuries that could adversely impact their draft status but are not likely to prevent the athlete from returning to competition. It can help an athlete recover millions of dollars, or part of the monetary value of a drop in the draft because of an injury.
Some examples are recent NFL draft picks Jaylon Smith, a linebacker from Notre Dame whose injury pushed him from the top five overall to Round 2, and Jake Butt, a tight end from the University of Michigan. Butt slipped to Round 5 in the 2017 draft but was set to collect $543,000 from an LOV policy he took out before his last college season — and before a knee injury in his final game.
The LOV formula is developed by an insurance provider based on many factors, including mock drafts published by sports journalists, former scouts and other experts. With the NBA, NHL and Major League Baseball drafts happening in the next two months, highly regarded draft-eligible athletes in those sports could be covered under LOV policies, Convertino said.
“For the top projected draft picks, we generally have a good idea for when these players will be drafted,” Convertino said. “So insurance underwriters will research mock drafts to determine the expected contract value.”
An LOV policy is available only to athletes projected to be a high pick – Round 1 or perhaps high Round 2, Convertino said.
Other options for college athletes
Permanent Total Disability (PTD) coverage is another option for college athletes who may still compete in college. While many colleges and universities do honor an athlete’s scholarship even if he or she has suffered an injury that prevents them from competing, a PTD policy can cover tuition and room and board should an institution elect to pull a scholarship from an injured athlete.
A recent example of a need for PTD is former Michigan State University basketball player Miles Bridges, who surprised many by electing to return for his sophomore season rather than enter the 2017 NBA draft. Bridges was able to secure an insurance policy to protect himself against an injury during the 2017-18 college season. He had been a projected first-round pick in the 2017 draft.
Recently the NCAA refined a program that helps athletes pay for disability coverage through a student assistance fund established by the governing body, Convertino said. Many families elect to pay for such coverage on their own, assuming they can afford the premiums.
“You have to qualify for the assistance based on where you are likely to be drafted,” Convertino said.
A PTD policy can cost between $7,000 and $12,000 per $1 million of coverage, depending on the player’s position, medical history and age, Convertino said. LOV policies vary in price as well but in general are $2,000 per $1 million of coverage. Umbrella coverage and Sports and Entertainment policy costs will vary depending upon the athlete.
“Once an athlete earns their second contract, insurers generally will make more options available to the athlete because they have proven themselves to be responsible,” Convertino said.
As with any coverage need, an insurance broker or agent must be consulted. Click here to forward this article to your insurance broker or agent to ask if you need this coverage, or share this with clients to start the conversation and ensure proper protection.
This information was provided by Burns & Wilcox, North America’s leading wholesale insurance broker and underwriting manager. Burns & Wilcox works exclusively with retail insurance brokers and agents to assist clients like you with their specialty insurance needs. Ask your insurance broker or agent if a Sports & Entertainment, Personal Umbrella, Loss of Value or Permanent Total Disability policy is right for you.