The Challenges of Funding Elite College Athlete Disability Insurance

By Frank Darras, Esq. Mr. Darras is the founding partner of DarrasLaw, America’s top disability insurance litigation firm. His firm has recovered nearly $800 million in wrongfully denied insurance benefits for clients of all backgrounds and professions across the nation.

Injuries are a fact of life for most athletes. However, the right insurance policy can make a huge difference for today's stars.

Thanks to a few high-stake lawsuits and more focused news coverage, we are finally hearing more about elite athlete insurance policies. In turn, more Division I, draft-eligible college athletes are considering the purchase of loss of value and/or permanent total disability insurance.

When language and exclusions are negotiated zealously and the policies are applied for properly, this high-stake disability insurance can provide financial security to athletes who move on to the pros or forgo the draft and return to school. However, most athletes and their respective colleges or universities face one huge obstacle: how in the world do they fund the coverage?

The NCAA earned total revenue of nearly $1 billion during the 2014 fiscal year. During that same year, an estimated $75,572,000 was distributed to Division I schools in the form of the Student Assistance Fund. While it is pocket change in comparison to the NCAA’s overall funds, $75 million is still serious money. Could this fund be the answer to paying the premiums for elite athlete insurance policies? As awareness of this high stake insurance disability coverage increases, how do the players, families, colleges or universities meet the challenge of proper protection and funding?

Using the Student Assistance Fund

In October 2014, the NCAA issued a historic waiver allowing its members to purchase loss of value insurance for its elite athletes and allowing college athletes to borrow against future earnings to purchase individual disability plans. Prior to the issuance of this waiver, some schools used a tiny loophole regarding the NCAA Student Assistance Fund to cover the disability insurance premiums to protect their draft-bound athletes.

Loss of value insurance is typically available as a rider on an elite athlete’s permanent total disability policy. (There are rumors that the NCAA will offer loss of value insurance on a very limited basis, but this speculation remains unconfirmed.) When an athlete opts for LOV, 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. As the priceof PTD/LOV coverage goes up, it makes the decision to use SAF money to fund both premiums more complicated.

Attorney Frank Darras

The SAF is intended to “assist student-athletes in meeting financial needs that arise in conjunction with participation in intercollegiate athletics, enrollment in academic curriculum or to recognize academic achievement.” Some schools have used the funds for travel expense for family emergencies, clothing, academic supplies, and even for health or dental insurance premiums. Remember, as athletes travel out of state to attend high-profile programs, they lose “in-network coverage” under their parents’ health insurance policies, so premier programs often fill the gap.

According to the NCAA, SAF money is distributed to Division I conference offices based on a “broad-based” formula, which encompasses sports sponsorship, Pell grants, and grants-in-aid. From there, each conference devises its own method of distributing the SAF to its schools. One SEC school received approximately $360,000 in funds to help its 550 student athletes during the 2013-14 year.

Because the funds are intended for all athletes – not just the high-round draftable stars – athletic compliance directors often face difficult decisions. According to one Sports Business Daily article, many schools worry that using SAF money to fund elite athlete insurance policy premiums will deplete resources available for other student athletes in need. Therefore, when it’s time to buy PTD and LOV insurance policies, a complicated question arises: how much of the SAF can or should the schools use?

This problem multiplies when a college or university is blessed to have multiple first-round, draft-eligible athletes. Some schools have come up with a working interim solution: They’re putting a cap on how much of the SAF can be used on elite athlete insurance premiums. Others are choosing not to use any of the SAF for these policies, opting instead to save the money for its original purpose.

So far, Sports Business Daily reports, the concerns about running out of SAF money are unfounded:

“Chad Hawley, the Big Ten’s associate commissioner for compliance, says he doesn’t remember a conference institution ever running out of SAF money. In fact, the conference has built up a nice cushion over the years, carrying over about $2 million each year.”

Seeking funds elsewhere

The NCAA’s revenue distribution plan for 2015-2016 allotted an estimated $79,940,000 for the Student Assistance Fund. While it seems unlikely for that kind of money to be thoroughly depleted through funding elite athlete insurance premiums, many schools don’t want to take the chance. If colleges and universities won’t fund the premiums (either partially or fully), what can our college athletes do?

Option one: They can pay for the policy out-of-pocket. This isn’t much of an option for most students and their families due to the cost.

Option two: They can take out a bank loan against their future earnings to cover the premium. A potential first-rounder can usually pay off this loan soon after signing his or her pro contract, or after signing an endorsement deal.

According to Justin Siegel, co-managing partner of Parq Advisors in Beverly Hills, Calif., there’s a third option: the athletes can fund the premiums with a combination of bank-loaned money, personal funds, and SAF money.

“It happens all the time,” Siegel says. “We’ve seen many scenarios where the school says, ‘We’re only willing to contribute up to $20,000 per player, and the premium is $40,000. In that situation, the player would have to finance the rest, which may come partially from the family and partially from the bank, or entirely from the bank. This combination is a very common way to fund what are often very hefty premiums.”

Multiple-source funding does not mean the money can come from anywhere – according to NCAA bylaws, an agent, advisor or financial advisor cannot loan the student-athlete money to purchase the policy.

After funding, what comes next?

When an athlete pulls together the necessary funds for a LOV/PTD insurance policy, what happens next?

Unfortunately, funding the policy premium is only the first step in the process. “Each coverholder has different language, coverage provisions and exclusions,” Siegel said. “Depending on the insurer, all will examine previous or current health history and risk in different ways.”

Those differences in language, risk and interpretation of health history matter not only when purchasing the policy, but also when trying to complete the application properly and truthfully. Athletes and their institutions often need expert legal disability help ensuring each question is answered fully and completely to avoid fatal mistakes during the application process and at policy delivery time.

For example, many policy applications require athletes to disclose if they have “suffered pain or discomfort” and where they felt it.” Every high school and college athlete has played with some type of pain,” Siegel said. “But those things are different than a permanent total disability or something that would give an underwriter cause to deny the application or rider out coverage for the body part.”

Still, Siegel said, athletes should consider their answers carefully. “True disclosure of everything and providing accurate medical history is one of the most important things athletes can do, or else be added to the recent stockpile of high-profile claims that have gone unpaid,” he added.

Even if a college or university doesn’t help their athlete fund PTD or LOV premiums, athletic and compliance directors need to become intimately familiar with LOV and PTD policies. Athletes and their families are going to have more questions than answers; they need a trustworthy ally to help them without creating any NCAA violations.

Brad Barnes, assistant director of athletic compliance at Texas A&M, has reviewed his fair share of PTD and LOV policies. Knowing the ins and outs of elite athlete insurance isn’t easy, but for Barnes, it’s a necessity.

“We need to be advocates for our athletes,” Barnes said. “If they’re presented with a product like this, I’m going to want to know everything about it and provide our athletes with a clear picture of what they’re really getting.”

With millions at stake, athletic compliance directors need to align themselves with professionals experienced in handling high-stake disability insurance matters for exceptional athletes. Learning to buy right, completing a bulletproof application, and avoiding fatal mistakes before policy delivery and at claim time can mean the difference between wasting thousands on a premium and collecting the disability benefits.

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