For basketball fans, the upcoming NBA draft on June 20 is the most exciting day of the off-season.
But for athletes who train for years to get a shot at the pros, the draft is the culmination of a lifetime of work. For top college athletes, a professional career and the paycheck that goes with it is right around the corner.
Provided, that is, they stay healthy.
As college athletes approach draft eligibility, many become leery of exhibition games or skip their final year of college play entirely, fearful that a torn ACL or blown knee could jeopardize their shot at the pros or impact future contract value.
Enter the world of insurance. Like any valuable investment, a promising athletic career can be insured — and policies known as “loss of value,” or LOV, have stirred up quite a bit of discussion and debate.
LOV: A a quick primer
Loss of value is basically just that, a policy designed to allow peace of mind for student athletes to finish their education and play their final college season without fretting over possible injuries. For universities, it is a tool to recruit and retain top players by giving them a safety net in exchange for delaying a pro career one more season.
LOV is based on the fact that top draft picks can earn millions more than athletes who get selected later. For that small group of elite players, a mild to moderate injury or illness won’t necessarily end their careers — but it could cost them dearly if their draft ranking drops. This is where LOV policies come in.
But again, they make financial sense only for a select few.
In fact, the NCAA states only the very top prospects stand a realistic chance of ever collecting on a LOV policy, recommending it only for the top 10 picks in their respective draft. This is because students who weren’t projected to be a top draft pick will have a hard time proving their projected value.
While the NCAA offers a permanent disability coverage program (more on that below), it doesn’t offer loss-of-value coverage, stating in a recently published white paper that LOV policies, “don’t consistently benefit student-athletes who file a claim.”
Indeed, only a handful of athletes have collected on LOV, the most recent being current NFL player Jake Butt, who tore his ACL during playing in the 2016 Orange Bowl for the University of Michigan. He later collected $543,000 from his LOV policy.
LOV is usually 50% to 60% of an athlete’s originally projected rookie contract. LOV pays the difference between this predetermined amount and the athlete’s actual contract value.
Permanent total disability vs. loss of value
LOV is a newer and different animal than permanent total disability (PTD), the traditional coverage of career-ending injuries that’s been a staple for college athletes for more than 25 years.
The NCAA offers PTD through its Exceptional Student-Athlete Disability Insurance Program, and maximum coverage ranges from $250,000 for women’s basketball to $10 million for football and men’s basketball.
NCAA does not, however, offer LOV, and athletes who want LOV and are eligible for it must purchase it through a private insurance company that specializes in this type of coverage. Also, LOV must be purchased as a rider policy with permanent total disability.
In summary: Students can purchase PTD only, or they can purchase both PTD and LOV as a package deal from a specialty insurer — but LOV policies are recommended only for top ranked draft picks.
Projected costs, and who pays
A total disability premium costs an estimated $10,000 per $1 million of insurance, and the add-on LOV coverage is roughly another $4,000 per $1 million of coverage.
ESPN reported that Butt’s LOV policy cost about $25,000.
That’s quite a sum for an unpaid college student, and they or their parents can certainly volunteer to foot the bill, but that’s not the norm. Often, the college or university will cover the premium using the NCAA Student Assistance Fund, money set aside to help student athletes cover non-athletics related expenses while attending school.
In addition, the NCAA in 2014 created a path for athletes to borrow against future earnings to pay the premiums — a method that in the past was reserved only for PTD coverage. Most often, athletes and their families have used combinations of the above methods to pay premiums.
Exclusions and other landmines
Loss of value coverage requires medical underwriting and comes with a list of exclusions. Preexisting conditions such as degenerative conditions, mental disorders, drug and alcohol use are among these.
Athletes also aren’t likely to be covered if a drop in draft status due to poor performance during the season or draft value changes due to superior performances of other athletes.
To ensure a payout, it is important to provide a thorough medical background: claims have been denied because of inaccurate or incomplete application data — even when the incomplete item had nothing to do with the claim, according to the NCAA.
A final word of warning: Just because a student gets sick or injured doesn’t guarantee a payout. He or she must be able to prove the injury or illness happened during the coverage period (the year before he or she is eligible for the draft) and was the sole reason for the drop in value.
Jason Hargraves (Jason.Hargraves@allwebleads.com) is managing editor of InsuranceQuotes.
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