High-dollar insurance policies protect high-dollar professional athletes

Professional athletes command astronomical salaries. For instance, Indianapolis Colts quarterback Peyton Manning is expected to sign a new contract in 2011 worth more than $20 million a year.

One of the greatest fears for elite athletes like Manning is a career-ending injury — an injury that could cut off cash flow. To plan for these instances, top pro and college athletes carry high-premium insurance policies that compensate for potential earnings lost in case of a serious injury like a torn knee ligament or a broken leg.

Like most insurance policies, the rates for athletes’ policies are based on a cost-benefit analysis. A PGA golfer, for instance, poses far less risk for a career-ending injury than, say, an NFL quarterback. Therefore, an NFL quarterback would pay more in insurance premiums than a PGA golfer would.

Lloyd’s of London issued a $78 million insurance policy covering British soccer star David Beckham.

Generally, these policies pay out in the event of an on- or off-field injury that ends a pro athlete’s career. Most professional sports contracts and unions include built-in provisions for athletes who suffer career-ending injuries on the field or court. However, most pro sports contracts are canceled when a player suffers a career-ending injury attributed to risky behavior away from the stadium or arena.

When British soccer star David Beckham went down with an Achilles’ injury in March 2010, insurance giant Lloyd’s of London breathed a sigh of relief. The company had underwritten a $78 million policy on Beckham’s legs, which covered his ankle bones but not the tendon. In addition to players taking out policies on themselves, teams sometimes buy policies for their marquee players. In 2009, Spanish soccer club Real Madrid bought an insurance policy (then valued at $144 million) covering star forward Cristiano Ronaldo.

Policies for pro athletes often provide millions of dollars worth of coverage. For someone like Miami Heat superstar LeBron James, who has many years left in the NBA, the coverage could be in the hundreds of millions of dollars.

The Beckham and Ronaldo policies were underwritten by Lloyd’s of London, the world’s largest provider of high-risk disability policies.

“There are very few high-end disability markets where you can get the level of coverage you need to supplement somebody’s income who’s making $100,000 a month,” says Louis D’Agostino, managing principal at insurance brokerage Iron Cove Partners in New York City.

D’Agostino knows plenty about the insurance market for pro athletes. A former standout running back on the University of Rhode Island football team, D’Agostino spent a season playing for the New York Jets. Among the products his company offers is high-risk disability insurance for athletes.

D’Agostino says he didn’t carry a career-related insurance policy during his playing days.

Procter & Gamble Co. bought a $1 million insurance policy covering the hair of Pittsburgh Steelers star Troy Polamalu, who appears in commercials for Head & Shoulders shampoo.

“I wasn’t educated on it,” D’Agostino says. “Given the road that I took, signing as a free agent, every day could have been my last with the team, so I wasn’t doing a lot of planning and thinking about the what-ifs. If I’m a draft pick in the top two rounds and I know that I’m going to make my bones playing a game and this is what I was born to do, it’s a different thought process.”

D’Agostino says his background fosters an immediate trust with potential clients.

“I’m there to add value, answer questions, get technical and go through some scenarios with them,” he says. “I’m not trying to be that guy that tries to push products that they don’t need. It helps to differentiate myself that I was one of them and now I also bring to the table 10-plus years in the insurance industry.”

To be sure, it isn’t cheap to insure a pro athlete. D’Agostino says policies can range from $20,000 to more than $100,000 a year, depending on what sport the athlete plays and what stage he’s at in his career.

Another factor in determining coverage is how athletes are generating income off the field or court. In one instance (perhaps more for publicity than practicality), Procter & Gamble Co. turned to Lloyd’s of London for a $1 million policy covering the voluminous hair of Head & Shoulders spokesman and Pittsburgh Steelers player Troy Polamalu.

While many large insurance providers like HUB International tend to attract the largest number of athletes, Dan Verdun is seeing more boutique agencies catering to sports figures.

Verdun specializes in insurance policies for pro athletes as an agent at Morristown, N.J.-based James A. Connors Associates. Verdun moved to the boutique agency, which was looking to open a sports division, after spending nearly three years at HUB International, which he estimates had 1,500 pro athletes as clients.

Verdun says he interacts more with agents, accountants, attorneys and advisers for athletes than the athletes themselves. He agrees with D’Agostino that there’s a general lack of education among players when it comes to the importance of career-related insurance. While each major pro sports league coaches its rookies on the business side of the profession, Verdun says the insurance lesson often falls on deaf ears.

“You’re in a room trying to teach a 22-year-old kid who just signed a $40 million contract, and he’s just not going to listen to you,” Verdun says. “It’s just not the format. A kid at 22 who just signed that contract doesn’t care. That’s why he has agents and advisers.”

–Kevin Allen