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Loss of Value Insurance May Prove Valuable for Athletes

According to CBS Sports, former Notre Dame linebacker Jaylon Smith recently collected on a loss of value insurance policy. Smith was projected to be a high first-round NFL draft pick but dropped to the second round, the 34th pick overall, […]


According to CBS Sports, former Notre Dame linebacker Jaylon Smith recently collected on a loss of value insurance policy. Smith was projected to be a high first-round NFL draft pick but dropped to the second round, the 34th pick overall, after suffering a devastating knee injury in the 2016 Fiesta Bowl. His policy payout is believed to be $700,000.

A loss of value insurance policy protects an athlete’s future contract value from decreasing below a predetermined amount due to a significant injury or illness suffered during the term of the policy. If an athlete signs a professional contract which falls below that threshold which was a direct result of an injury or illness, the insurance company must pay the difference between the contract’s actual value and the policy’s predetermined value.

CBS Sports reports that Smith’s insurance policy covered him for a loss of value if he did not receive an NFL contract that was at least $7.2 million for four years. The contract Smith eventually signed with the Dallas Cowboys was for $6.495 million over four years. Thus, resulting in the reported $700,000 payout.

Payment for Smith’s loss of value premium was $55,000, according to CBS Sports. How this amount was paid has not been reported. The NCAA allows its member institutions to use the NCAA Student Assistance Fund to purchase a loss of value policy for a student-athlete. In addition, a prospective draft pick may take out a loan against their future earnings to pay the loss of value policy premium.

Prior to Smith, only three players have been able to collect on their loss of value insurance policy after filing a claim. For this reason, the NCAA does not directly offer loss of value insurance. Indeed, merely purchasing the insurance does not guarantee protection and it can often prove extremely difficult to demonstrate an athlete’s drop in the draft was “solely and directly” related to an injury. Keep in mind, all loss of value policies will include exclusions for pre-existing injuries, drug and alcohol use, criminal acts and/or psychological disorders and others. More unpredictable factors can also affect whether a loss of value claim is paid, including off-field issues, poor performance during the season or at pre-draft workouts and changes in professional team’s needs.

Not all professional prospects need loss of value policies. Given the difficulties in proving loss of value claims, only the very highest of draft picks would seem to benefit from purchasing the insurance. For Jaylon Smith, the loss of value policy proved valuable.

Photo of Fraser Trebilcock Attorney R. Paul Vance

 

From commercial litigation to insurance defense, R. Paul Vance brings a diverse skill set to each matter for his clients. He currently serves on the Board of Directors for the Michigan Defense Trial Counsel and is President of the Michigan State University Varsity ‘S’ Club. Contact Paul at 517.377.0843 or pvance@fraserlawfirm.com.