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

Personal Insurance Advocates Ron Boynar Jeff Wasserman Business Development Executive Vice President, Director of Athletes & Entertainers Specialty Life 216-367-4936 216-367-5996 #OswaldSpecialty.com JWasserman@oswaldcompanies.com rboynar@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 • C laim 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