Loss Of Value Insurance: A Multimillion-Dollar Gamble?
June ushers in an exciting time in sports. As the top NHL, MLB and NBA draft prospects wait to see if their dreams of going pro come true, some will have one more thing to consider: if the draft doesn’t go well, could they join the lucky few who collected on loss of value insurance policies?
In this DarrasLiving podcast episode, we examine the merits and risks elite athlete insurance policies – and why they don’t always ensure a multimillion-dollar payday.
What is loss of value insurance?
Also known as draft slot protection, loss of value insurance protects against the risk that a student-athlete’s draft stock slips because of an injury or illness, resulting in a smaller signing bonus and/or pro contract.
LOV insurance is typically purchased in the year leading up to the athlete’s draft eligibility. It is available as a rider on a permanent total disability policy and increases the premiums by an estimated $4,000 per million of insurance.
These high-stake policies offer student-athletes the possibility of another year of college eligibility without the worry of losing it all if disaster strikes. With the security of loss of value insurance, elite student-athletes can stay in school another year or possibly earn their degree, both of which better prepare them for a life and career beyond professional sports.
How LOV coverage works
Loss of value coverage is determined through a three-step process:
1. Determine eligibility.
Insurance underwriters determine an athlete’s eligibility based on his or her projected draft position. Projected top 10 picks may be offered coverage ranging from $1 million to $10 million based on their projected draft positions.
2. Set the threshold.
Once eligibility is determined, underwriters set a threshold, which is typically 50 to 60 percent of the athlete’s projected rookie contract. Insurers may determine the threshold differently, which could result in different claim payment amounts.
3. Determine benefits.
If the maximum contract offer an athlete receives is less than the threshold, he or she could be eligible for LOV benefits. However, a significant injury or illness must be the sole and direct cause of this difference in order for the athlete to collect LOV benefits.
Learn more about how loss of value insurance coverage is determined.
The challenges of collecting LOV benefits.
LOV insurance benefits are notoriously difficult to collect, but not impossible. Here are the common reasons for a denied loss of value or career-ending disability claim.
1. The athlete, handler, college or broker misrepresented health, financial or medical information when applying for the policy.
Insurance carriers have a field day when they find omitted or partially submitted misinformation on an application that later leads to a claim. The insurer usually calls fraud and refunds the premium with interest, but doesn’t pay the seven figures of benefits.
2. The player was treated or should have gotten treatment, consultation or medical care/advice, or took medication during the pre-existing condition period.
Most athletes and their handlers fall into this trap because most players see a trainer, chiropractor, or physical therapist periodically as part of routine maintenance. Insurers often overstate these training aids as medical care, advice and treatment to eliminate any chance of collecting disability benefits.
3. The player had a lackluster combine or pro-day.
Insurers often claim that various teams’ needs that didn’t match what the player brought to the draft, and this-not a minor strain/sprain type of injury or sickness-caused their draft stock to slip.
Want more information? Contact us for free policy analysior or free application help with elite athlete insurance policies.