Insuring student-athletes: what are the federal income tax implications of schools buying disability policies?

Over the past few years, more and more colleges and universities have been doling out tens of thousands of dollars to purchase disability insurance policies on behalf of individual star athletes.  The schools are using money earmarked for student-athletes with special financial needs received from the National Collegiate Athletic Association (NCAA) to pay for these policies. Many view this development as a windfall for those students on whose behalf the insurance policies are purchased.  However, until now, an important issue regarding this process has remained unresolved: what are the federal income tax implications when a school pays the disability insurance policy premiums for a student-athlete?  This article provides a first-of-its-kind analysis regarding those tax implications. Specifically, it looks at:

• The growing trend of schools purchasing ‘permanent total disability’ (PTD) insurance and ‘loss-of-value’ (LOV) insurance;
• The NCAA’s disability insurance programs for student-athletes;
• Who pays the policy premiums for PTD/LOV insurance coverage?
• What are the Federal income tax implications for athletes?