Insuring The Risks In Sports: This is Big Business

Sports, especially football, is big business which is why some schools like the University of Michigan, are now funding insurance policies for their coaches. But what about their athletes?

The University of Michigan recently increased Coach Jim Harbaugh’s salary by agreeing to a premium loan of $4 million paid now, plus $2 million each year for the next 5 years, for a life insurance policy. Harbaugh will own the policy and that allows him the privilege of making withdrawals or taking loans on the policy if he so chooses.

This is similar to a concept that is called key man insurance. With key man insurance a company purchases a life insurance policy on the key employee, pays the premiums, and is the beneficiary of the policy. In Harbaugh’s case, he has a much better deal. He owns the policy and chooses the beneficiaries.

Insurance as an incentive for coaches is undoubtedly a great idea but, what about the athletes? Should student athletes be given similar benefits? Let’s face it, although they are younger, stronger and healthier than the average college football coach, student-athletes are much more likely to sustain a career-ending injury on the field than a coach is to die while coaching.

Recent changes to some NCAA rules are making insurance that covers career-ending injuries and potential loss of draft value available to some student athletes. Exceptional Student-Athlete Disability Insurance coverage protects the student’s future earning potential in the event of a catastrophic injury or illness while they are in school and on scholarship. As part of the ESDI program, qualifying athletes can purchase a permanent total disability insurance policy (PTD) that provides a present value lump sum payment if it is medically determined the insured student-athlete will never be able to participate in his sporting activity at the professional level because of an injury sustained in college. For a student-athlete to be deemed eligible to purchase PTD coverage they must be projected to be a first-round draft pick in the NBA,WNBA or MLB; or the first three rounds in the NFL, or NHL.

Although student athletes cannot be paid, the NCAA does allow schools to pay for these insurance policies by offering policy loans or covering the cost of the policy premiums by utilizing the NCAA Student Assistant Fund Program.

In recent years several schools have assisted in purchasing coverage for key athletes. Most recently Clemson made the news for purchasing two $5 million Disability Insurance policies for quarterback Deshaun Watson. The estimated premiums for these policies were anywhere from $80,000 to $100,000. To most people, those sound like really big numbers for insurance premiums but, when compared to the potential loss of income over the lifetime of a first round draft pick the total benefit of $10 million doesn’t seem like nearly enough.

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