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Questions to Ask Before Buying Loss of Value Insurance

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As athlete salaries and endorsement deals skyrocket, the possibility of losing money due to a drop in draft value becomes a real threat to many elite athletes.

Many of the nation's top college athletes are finding a solution in loss of value insurance, an often-debated type of coverage that provides financial protection from significant drops in draft value.

Consider Jake Butt, the Michigan tight end who will be the latest of a handful of 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 prior to suffering an ACL injury in Michigan's Orange Bowl loss to Florida State.

He was picked up in the 5th round by the Denver Broncos, and his policy, which took effect in the middle of the NFL draft's third round, will pay out approximately $543,000 tax-free.

However, loss of value insurance isn't a good fit for every athlete, and not all LOV policies are created equal. Here are questions every top draft pick should ask to determine whether LOV insurance is right for them.

What is loss of value insurance, and where can one buy it?

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.

As called draft slot protection, this coverage is available as a rider on a permanent total disability policy and is typically purchased for the year leading up to the athlete's draft eligibility.

While the NCAA offers its own PTD insurance through the Exceptional Student-Athlete Disability Insurance Program, it does not currently offer loss of value insurance.

Therefore, student-athletes must purchase LOV coverage through a private insurance company that specializes in these products, like International Specialty Insurance.

Who is eligible for it?

The NCAA recommends athletes only purchase LOV if they are projected to be a top-10 draft pick. Athletes with lower projections may have a hard time proving their projected value when it is time to file a claim.

What does it cost, and how can one pay for it?

When an athlete opts for loss of value insurance, their premiums increase by an estimated $4,000 per every million of insurance. This is in addition to $7,500+ premium per million of permanent total disability insurance.

For example, ESPN reports that Jake Butt's LOV coverage, purchased from ISI, cost an estimated $25,000.

While LOV insurance can be pricey, athletes have more options than ever to help them fund the premiums.

Student-athletes and their families can pay for it out of pocket, though this option is often unfeasible due to the high cost.

In 2014, the NCAA created a waiver that allowed athletes to borrow against their future earnings to cover LOV 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 opened another avenue of funding for athletes by allowing its member institutions to use the NCAA Student Assistance Fund to purchase loss of value insurance, a practice that is becoming increasingly popular.

This has led to 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.

However, athletes cannot seek multiple-source funding from just anywhere. NCAA bylaws state that an agent, advisor or financial advisor cannot loan the student-athlete money to purchase the policy. Instead, athletes must borrow from an established, accredited commercial lending institution that offers competitive interest rates and no co-signer.

What other questions should one ask to ensure the best possible coverage?

As with most types of 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 policies being offered?
  2. What are the restrictions, limitations and common exclusions on the table?
  3. Why is the policy definition language so important, and what terms and premiums are negotiable?

For more information

Contact a top-rated elite athlete insurance attorney for free policy analysis prior to purchasing a policy, or for free application help to avoid fatal mistakes before delivery of the policy.

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