PROTECTING THE NET: Loss-of- Value coverage is a hot topic. Is it - - PowerPoint PPT Presentation

PROTECTING THE NET:

Loss-of-Value coverage is a “hot” topic. Is it worth it?

Wednesday, May 13, 2015 By Jeff Wasserman & Ron Boynar

Ron Boynar

Business Development Athletes & Entertainers 216-367-4936 #OswaldSpecialty.com rboynar@oswaldcompanies.com

Personal Insurance Advocates

Jeff Wasserman

Executive Vice President, Director of Specialty Life 216-367-5996 JWasserman@oswaldcompanies.com

Oswald Specialty: Professional Athletes

• More than 30 years experience
• Professional athletes and coaches across all

major leagues

• World-class personal insurance products and

concierge services

• Annual risk evaluations and assessments
• Comprehensive policy auditing service

Basic Contract Structure

• Contract duration typically tied to current

contract, typically a maximum of five years

• Temporary Total Disability – Monthly benefit

paid in the event the athlete misses events or games due to a temporary injury or sickness

• Permanent Total Disability – Typically a lump

sum benefit paid in the event of a non- recoverable disability

Custom Contracts

• 1. Loss-of-Value

– Protects against loss of projected earnings – Ideal candidate 1-2 years from contract renewal

• 2. College Draft

– Loss-of-Value for top prospects – Career-ending injuries or sickness that prevents player from continuing their sport

• 3. Income replacement for Coaches

What is Loss-of-Value?

• Protects against loss of value due to injury or

sickness upon signing a new contract

• Bridges the gap between the player’s salary

and projected earnings

– Not meant to be career-ending coverage – Packaged with PTD

• One-year Contract; protects player for one

year

• One-time, lump-sum payout

How is LOV payout calculated?

• Carrier sets a threshold based on the player’s

projected earnings

– Based on market research

• Claim is triggered when a player’s contract

falls below the set threshold

• Threshold is generally set at 55% of the

player’s projected earnings

• Payouts equal the difference between the

player’s contract and the threshold, but not greater than the maximum

– Maximums are typically less than $10 million

Loss-of-Value Example

• Pitcher’s projected earnings are $10

million/year over 5 years or $50 mil

• Threshold is set at $27.5 mil or $5.5 mil/year

with a maximum $6 mil payout

• Pitcher has Tommy John surgery causing him

to sign a 2 year $4 mil contract

• Payout equals the difference between the

player’s contract and the threshold:

$11 mil/year – $4 mil/year = $7 mil But payout is only $6 mil!

Underwriting Issues

• Exclusions for prior injuries are common

– Knee, shoulder, elbow etc.

• Surcharges for prior injuries are also common
• Success in negotiating the removal of

exclusions/reduction of surcharges

• Many underwriters are sport-specific

– Knowing the underwriters who specialize is half the battle

Whole Life with Waiver of Premium

• Tax-Deferred

– Cash value growth

• Tax-Free Income

– Not subject to the restrictions of most retirement accounts

• Flexible

– Contribution and income options

• Disability Waiver of Premium Rider

– “Own-Occupation” definition – Pays insurance premium and savings component for five years should a career ending injury occur

Waiver of Premium Case Study

Background:

• A 28 year old running back with a five year contract

purchased a Whole Life Insurance policy with a five year schedule of premiums.

Benefit Details:

• Contract provided a $7.5 million death benefit to his

family

• Accumulated significant cash value on a tax-deferred

basis that he can use as tax-free income in retirement

• Included a unique “waiver of premium” rider in which the

Insurance Company would complete the scheduled five payments should the player suffer a career ending injury.

Contact Ron Boynar @ 216-367-4936 with questions