After an unprecedented overtime win by the New England Patriots, Super Bowl LI is in the books. Now that the 2016-2017 NFL season is officially over, all eyes are turning to the upcoming 2017 NFL Draft in late April. The most elite players in college football will be vying for the 253 open slots on 32 NFL teams. Of the 253 picks, only the select few at the top of the first round will receive contracts in the millions of dollars. Most of the players in these coveted top spots already know who they are – in the months leading up to the draft, they’ve been communicating with potential teams through their agents and meeting with their potential new coaches. These athletes, who spend most days pushing their bodies to the limit in one of the most dangerous professional sports in the United States, quickly realize how much they have to lose if they get hurt before the draft. A serious injury before the draft can mean millions of dollars in lost income. In recent years, disability insurance underwriters have started to market disability a insurance product to NFL, NBA, and MLB prospects who stand to lose everything if they suffer a catastrophic injury.
Permanent Total Disability
The traditional disability insurance policy for a professional athlete isn’t that different from an own occupation policy that a doctor or dentist might obtain at the beginning of their career. Many high profile college athletes seek out these policies to protect their financial future in the event of a career-ending injury. Some athletes, like former University of Kentucky basketball power forward Nerlens Noel, who was ultimately drafted number six overall in the NBA draft, pay large sums of money for high-value policies through private underwriters. However, many top prospects are also able to obtain policies through the NCAA’s Exceptional Student-Athlete Disability Insurance (ESDI) – a program specifically reserved for athletes predicted to be high draft picks. Former Stanford University quarterback Andrew Luck, for example, obtained a $5 million policy through ESDI before being drafted by the Indianapolis Colts.
However, the difficulty with these policies is that under the definition of permanent total disability, the policyholder must be unable to ever return to their sport in a professional capacity – an injury that merely reduces the policyholder’s earning potential does not make the policyholder eligible to collect benefits. So, the policyholder is still able to earn money in his or her sport’s minor league, they are likely ineligible for benefits. As medical technology, surgical techniques, and rehabilitation therapies improve, the total permanent disability standard becomes even more difficult to reach. College superstars like Willis McGahee, Marcus Lattimore, and Kevin Ware have suffered horrific on-field and on-court injuries and gone on to play professionally. NFL superstars like Rob Gronkowski and Adrian Peterson have sustained multiple injuries that would have ended their careers a decade ago. Because of the advances in sports medicine, total disability claims by professional athletes are rare. Consequently, the focus of the professional sports disability insurance industry has turned to a new product: loss-of-value insurance.
Loss-of-value insurance is typically a rider on a total permanent disability policy, and is specifically marketed to top college prospects who are expected to be selected in the top tier of their respective drafts, largely football and basketball. For an eligible athlete, the underwriter establishes a baseline projected rookie contract. If the athlete is undrafted or receives a contract significantly less valuable than their projected baseline due to injury or illness, the policy will pay out a benefit.
Take, for example, University of Michigan tight end Jake Butt, who tore his ACL during the first quarter of this year’s Orange Bowl. The injury prevented Butt from participating in the NFL draft process due to surgery and recovery, and the potential first round pick will likely fall in the draft rankings as a result. Prior to this season, Butt obtained a $4 million total disability insurance policy with a $2 million loss-of-value rider for which he is eligible for benefits if drafted after the second round. This year’s NFL draft may test insurers’ willingness to pay up on one of these high-value claims if Butt is not drafted in the first two rounds.
Can You Collect on Your Loss-of-Value Policy?
Loss-of-value insurance is a relatively new phenomenon. So far, only a select few loss-of-value policies have ever actually paid out. In previous posts, we have talked about the incentives that disability insurance companies have to delay and deny benefits for high-earning individuals with legitimate disabilities. In the same way that dentists are often targeted for denial in their disability insurance claims, professional athletes with loss-of-value disability insurance are targeted because of the enormous financial incentive to deny benefits. So, not surprisingly, Lloyd’s of London, the most prominent underwriter in the loss-of-value insurance market, has been sued by several NFL prospects whose claims were denied. A lot of money is at stake in these policies, and to the insurance companies it may be worthwhile to spend years litigating a claim that could cost the insurance company millions of dollars. The importance of an experienced advocate in such a scenario cannot be understated.
To this day, only two professional football players have successfully collected on loss-of-value disability insurance: Silas Redd and Ifo Ekpre-Olomu. Redd, a highly sought-after running back from the University of Southern California, went undrafted in the 2014 NFL Draft after suffering a season-ending knee injury. Ekpre-Olomu, a cornerback for the University of Oregon, collected $3 million from his loss-of-value rider after the projected first-round pick fell to the seventh round in the 2015 NFL Draft due to an ACL tear suffered at the end of his senior season.
If Jake Butt’s draft position drops below the second round, it will provide another interesting test case for how disability insurers handle these high-value claims. Given the large amount of money at stake, it is certainly possible that insurers will keep denying claims until they are forced, through litigation, to settle or pay out.