What kind of insurance do star athletes need?
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Enes Kanter, a 26-year-old center for the New York Knicks, had a big decision to make this summer. His contract allowed him to either opt in for another year with a salary of $18.6 million, or opt out, and free himself to sign with another team right away.
He chose to stay and wait for a bigger contract next summer, but not without hedging his bets. With only one year of guaranteed money on his deal, Kanter told ESPN he bought an insurance policy that will pay him $20 million if he suffers a career-ending injury.
Professional athletes make a lot of money in not a lot of time, unless they get hurt. They have to hedge against that risk, usually by purchasing some form of disability insurance. Disability insurance pays out if you're too ill or injured to work.
"The only thing that's going to keep you from is if you can no longer play your sport," said James Tallarico, a partner at Schaefer Enterprises, Inc., a New York insurance agency.
Top athletes buy three insurance products, said Tallarico, whose clients range from NHL prospects to top NBA players. Every athlete should have permanent total disability insurance, he said.
Permanent total disability pays out if an athlete can no longer play their sport. They receive a tax-free lump sum. (More of an office chair athlete? You can still compare prices for disability insurance to protect your income.)
Athletes can also buy temporary total disability, which covers shorter periods of time when they can't play, Tallarico said. This is geared more toward athletes like golfers and tennis players, who get paid for entering and winning competitions. For them, missing a few months during their peak playing and earning season can be a big financial loss.
Athletes who think they're going to get paid a lot in the near future, like highly rated draft picks or those who think they'll get a big raise with their next contract, may want to buy a loss of value policy. These policies get a lot of attention around NFL draft time.
Top draft picks can make millions more than athletes who get picked later, so they often buy policies that pay out if an injury or illness causes them to slip down the draft board.
Top players going into free agency may also want to buy a loss of value policy. Odell Beckham, wide receiver for the New York Giants, is a good candidate for this policy, Tallarico said.
Beckham will make $8.5 million this season, but is due for a huge raise once he hits free agency in 2019 — unless he gets hurt.
Carriers have also started to insure endorsement deals. NBA players have guaranteed contracts, meaning they get paid whether they play or not.
But many NBA players earn a lot of money from endorsing sneakers, and those deals typically have clawback agreements if players don't participate in enough games, Tallarico said. Insurers have begun to offer policies that hedge against the risk of losing that endorsement money.
Teams take out insurance on players as well. The Texas Rangers signed slugger Prince Fielder in 2014 to a contract that pays him $24 million a year through 2020.
Neck injuries ended Fielder's career in 2016, but contracts are guaranteed in the MLB. Fielder is still owed $24 million a year, but the Rangers don't pay the whole amount — insurance covers $9 million, while an agreement with his former team pays $6 million, the Dallas News reported.
Premiums vary based on an athlete's age and sport, Tallarico said. The older you are, the more you pay. (The same rule applies to the cost of disability insurance for non-athletes.)
Football players are the most expensive to insure, not only because of the rate of injuries, but also because contracts aren't guaranteed in the NFL. Golf tends to be cheaper, Tallarico said.
But golfers get hurt too: Anthony Kim, once a PGA Tour star, stopped playing in 2012 due to injuries. He now lives on monthly payments from an insurance policy, Kim told the Golf Channel.
Most of us think athletes are set for life, but an injury can leave even stars in financial trouble.
"You never think it's going to be you," Tallarico said.
Speaking of star athletes, we talked to one. Check out our conversation with soccer genius Megan Rapinoe.
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