Why athletes should consider career ending insurance to protect against serious injuries

Thursday, 23 March 2017

Career ending insurance always causes a debate with clients. With some of the author’s clients, this conversation ends quickly; with others, it goes on. I am always quite firm in stressing to clients how important it is and the scale of the risks they are taking on if they choose not to cover themselves.

This article briefly sets out the author’s views and experiences on the somewhat delicate issue of career ending insurance for athletes. The views are the author’s own, and the focus will be on footballers as they form the majority of the author’s client base. Specifically it looks at:

The risks that athletes need to consider insuring themselves against
How career ending insurance works
The importance of ensuring that the policy is fully effective
Making a claim
Costs of the policy
Comment and final tips

The risks

Injuries in sport happen regularly: every day in training, every game, and most of the time you have no idea that they are coming. They can range from twisting a limb badly on the field, to a badly-timed tackle, to a player collapsing with a heart attack on the pitch.

The Professional Footballers Association (PFA) has previously stated that on average 30 players a year across the UK’s football leagues have their career ended prematurely due to injury. There is no reason or excuse not to have this cover when you are in such a high risk profession.

Drawing on personal examples, I have had two clients injure the same cruciate ligament twice and be out for two years. Another client initially argued that he didn’t need cover as he was young and had never been injured. Unfortunately, he went on to break his leg in two places weeks later, but thankfully he had taken out the insurance. Yet another was about to sign for a Premier League club from a Championship club, only to break his leg and be out for a year, potentially losing his chance to treble his income. At one point last season (2015/16), I had four clients out injured with cruciate knee injuries.

How career ending insurance works

Career Ending Insurance pays out a lump sum when a footballer gets injured and can no longer play football. The lump sum is tax free.

This insurance is paid for by the athlete in the main to protect their personal income. In some circumstances and countries, the clubs insure the player (although that’s principally to protect their own interests).

There are occasions where the club will agree to pay an annual sum towards the cost of the cover for the footballer. This is not considered a benefit in kind payment so tax is not payable on this as it is written in to the contract as a contribution made by the club. This will be written into the player’s employment contract. The player can pay for the insurance in one lump sum annually or over 10 months (which costs slightly more).

The idea is the lump sum pays out an amount to give financial assistance to the sportsperson for the rest of their life. The level of insurance they require can be looked at many ways. If a footballer has a five year contract and gets insured and cannot play again he will most likely lose 2-3 years’ worth of income from that contract. So you can insure against this loss. If someone is young and has a big potential, you could look at insuring the loss of their contract plus potential future earnings.

The importance of ensuring that the policy is fully effective

The policy is a one year renewable policy, and when taking it out for the first time, unlike other insurances, the sportsperson is instantly covered. So, if a client wanted to take out cover on a Friday for a game at the weekend, it is possible to immediately get them covered from that point going forward (excluding pre-existing conditions). There is then a 45-day window to get the policy fully underwritten, which means both the player and the club doctor completing the necessary medical forms. Up until this point, all pre-existing conditions are excluded until the full application form is received back by the insurer and fully underwritten.

I have seen cases in which the full underwriting process is never completed. This leaves the player entirely exposed, paying for an insurance that may not actually pay out as any pre-existing conditions are excluded from the policy. I have also seen circumstances in which a financial adviser (who didn’t work with sportsmen) tried to get the underwriters to cover the footballer before starting the plan. In a freak and sad situation there was a long delay in which the player sustained a career ending and wasn’t covered under the policy. Each year on renewal a shorter declaration of health is needed, which is comprised of tick boxes to confirm any (or no) injuries in the past 12 months.

Making a claim

If a footballer is injured, they have 12 months to register the injury and two years from the date of the initial injury to make the claim. The insurance pays out only if the footballer is medically signed off to be unable to play again. These dates are key. You can still claim on a policy from 2 years ago even if you don’t have the insurance any more or have changed broker. The insurance pay-out is made as a lump sum and is tax free.

The insured amount will be worked out in advance of taking out the cover and be in line with their current earnings, contract length or age. For example if a footballer had a 5 year £1m a year contract and on day one they got an injury, they would normally try to recover and this may take a year before deciding they can no longer play. They will be paid throughout this period by the club. The club would then if they had to end their career pay them 12-18 months’ salary. So the player would lose 2.5-3 years contract so this would be a starting point for a discussion about cover – a minimum of £3m and we could agree a higher amount if they are younger with a long career ahead of them; or lower if they are older and have built up sufficient assets already.

The cost of the policy

The insurance is expensive, and the price goes up each year with age. By way of example, a 22-year-old covering himself for £6m would pay around £30,000 per annum. A 32-year-old with the same level of cover would pay £70,000 per annum. However, in relation to the salaries that some footballers have the potential to earn, it is in the author’s view a small price to pay. I often find myself debating the cost with footballers, and often ask them to explain why will they pay more to insure their cars than they do their multi-million-pound football contract?

Finding the best priced policy is another debate. It’s an extremely competitive market and you have specialist brokers trying to win business, so sometimes they reduce the cost of the premium to entice you to use them. For the author, cost is not the most important thing; having a policy that will pay out the claim is always the single most important thing.

Comment and final tips

The world of career ending insurance is currently evolving. The main brokers use specialist underwriters at Lloyds of London. With new entrants entering the market the underwriters have moved from one broker to another. This leaves one broker looking for new underwriters for their plan and the clients’ underwriters changing brokers.

An experienced broker, with a proven track record of claims handling, consistent experience in underwriting and policy wording are all the things that should come before the cost of the policy in terms of importance.

There are many little quirks that athletes need to be aware of. Some policies only cover the athlete in the UK, but of course with today’s international competition, worldwide cover is now often essential.

If once you get comparison quotes there are large discrepancies you can always discuss why with the broker and sometimes renegotiate on price and terms.

Finally, always speak to a financial planner with experience in recommending this type of cover to help navigate and fine the best policies and most importantly never choose on cost alone.