College athletes and insurance (cont.)
Despite that discount, however, some players still prefer working with private agents. The $5 million policy is the maximum the NCAA offers, and most potential first-rounders want more coverage. This year, Lerner's firm wrote policies for as much as $15 million. Though Lerner never reached that number, he did write some eight-figure policies. Lerner said he typically determines policy amounts by using the contracts of the previous season's draftees to calculate the amount of guaranteed money a player might expect to receive after taxes. That means Lerner's maximum probably will increase soon. Former Georgia quarterback Matthew Stafford, the No. 1 pick in this year's NFL draft, received a reported $41.7 million in guaranteed money from the Lions. Assuming Stafford is taxed at the federal maximum of 39 percent and the Michigan rate of 4.35 percent, Stafford still would receive more than $23.6 million after taxes.
Lerner also said buying a policy through a private agent allows players an easier transition to professional disability insurance. "As soon as his college policy ends, we can move him into a pro policy," Lerner said. "If there's ever a question come claim time, he was with the same company college and pro. So there's a history, and there's no gap in coverage. And that's key."
Still, buying a policy through the NCAA might be a better option for some. The NCAA offers policies to athletes in football, men's and women's basketball, baseball and hockey. Sheely said football players comprise 80 percent of the 100-120 athletes who buy policies every year. By obtaining a policy through the NCAA, those athletes eliminate one potentially tricky step in the process.
For policies purchased through the NCAA or through private agents, the premium must be paid immediately. Since most players' families don't have $20,000-$100,000 lying around, they must secure a loan to pay the premium. After Sheely's staff evaluates a player to ensure he is draftable and places him in the program, that player is guaranteed a loan through U.S. Bank to pay his premium. Since the terms of the loan are approved by the NCAA, the player doesn't risk his eligibility. Players who secure their own loans cannot accept any perks (lower interest rates, waiving of points) that wouldn't be available to the average bank customer. Otherwise, they would run afoul of the NCAA's extra benefits rule.
In most cases, the balance of the loan is due either after the policy pays out or after the player signs his first contract. That's why Sheely warns borderline players to make sure they want to play professional football before they apply for the loan. She said one player a few years ago was a low-round draft choice and opted to go to graduate school. That left him with no income and a fat bill to cover the loan that paid his premium.
Sheely also works hard to ensure players understand the policy pays out only in the event of a catastrophic, career-ending injury. "Just having an injury that affects your draft status doesn't trigger a payment," Sheely said.
In his research, however, Bradford found policies that cover such losses. Anyone who has bought a new car should be familiar with the concept of gap insurance. In the automotive world, the buyer pays an extra fee so that, in the event of a collision that totals the car, the insurance company will pay the full amount owed on the car instead of market value, which could be significantly lower. The concept is similar in football. Such policies -- which Lerner said are available only to players projected near the top of the first round -- will cover the gap between expected guaranteed money and actual guaranteed money should, for example, an offensive tackle tear his ACL during his senior year and fall into the third round. But because such injuries are far more common than career-enders, there's a significantly higher premium (up to 80-90 percent more, Bradford said) for gap coverage.
Anyone who has bought a homeowner's insurance policy knows underwriters can be persnickety about the exact value of insured items. The same concept applies in football, so agents such as Lerner must be Mel Kiper-esque in their draft projections. They don't want to overcharge their clients for coverage they don't need, and they don't want to upset the underwriters, whose antennae go up when they believe they've paid out more than they should have. "If I write a $5 million policy on somebody, that guy better be a first rounder," Lerner said. "That's very important to me."
What's most important to Lerner, however, is knowing most of his clients haven't seen a dime back from his policies. Since 1989, his policies have paid out only twice, to Chester and to a hockey player. Sheely said that since 1990, only about a dozen NCAA-backed policies have paid out. The rest of the players advanced to the pros, hopefully enjoying more peace of mind during their final seasons in college. "I hope the player never collects," Lerner said. "I would rather see him playing on Sunday."
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