In Part 1 of this article we discussed the importance of Permanent Total Disability (PTD) and what to look for when acquiring it. For this part let’s turn our focus to Loss-of-Value (LOV) insurance.
Remember that PTD covers an athlete in the event of a career-ending injury. LOV, on the other hand, provides a benefit for those who continue to play their sport but at a salary much less than what their market value was before injury or illness.
It was designed to protect professional athletes or collegiate athletes expecting to go pro should they get hurt or become sick between now and their big pay day. LOV does not replace current income, but softens the blow if their value takes a dive.
For an insurance carrier to calculate a player’s loss-of-value, they must first project the player’s market value at the time of their contract signing. A carrier may use multiple resources to come up with that number but relies heavily on contracts signed by similar athletes.
Once fair market value has been assigned, the insurance carrier sets a disability threshold at around 60% of the market value – a level considered to be an outright decrease in the athlete’s value.
The threshold is what determines eligibility of a claim. Generally speaking, a claim is triggered the moment an initial contract offer that falls below the threshold is made.
Important things you should know about LOV:
As my friend, Noel Paul, an attorney at Reed Smith LLP, will tell you, “Full disclosure of any prior injury or illness from sport or otherwise is your best defense in the event of a disputed claim.” Even if the athlete broke their wrist falling out of a tree at Grandma’s house when they were twelve, the insurance company should be made aware.
LOV insurance is certainly not for everyone, but in the right circumstance and as part of a comprehensive financial strategy, it can make all the difference.
Note: This communication is for informational purposes only. Although every reasonable effort is made to present current and accurate information, Oswald makes no guarantees of any kind and cannot be held liable for any outdated or incorrect information. View our communications policy.
To receive Part 1 or future updates on specialty insurance programs including Temporary Total Disability (TTD) and Deferred Compensation Programs involving cash value life insurance connect with Ron Boynar at www.linkedin.com/in/ronboynar or give him a call at 216-367-4936.
Ron is an insurance advisor at Oswald Companies in Cleveland, and is committed to ensuring that athletes, coaches, entertainers and other high-net worth individuals have proper insurance to protect their net income, assets and future earnings against exposures specific to their profession. Follow Ron on Twitter @OswaldSpecialty.