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You probably didn’t think we would be talking about disability insurance, right? So, do you need coverage? The answer varies for every individual. We are joined this week by former NBA player and current owner of Leverage, a disability and life insurance firm. In this episode, we discuss questions like:
- As a high school draft prospect, is disability insurance really necessary?
- Is disability insurance even worth it for me?
- If I am currently enrolled at a university, what should I do?
- Will my university pay for my disability insurance?
- What are my chances of getting injured and filing a claim?
- How much disability insurance should I take out?
- Does it just cover me on the field?
Who should I trust with my risk management?In episode six, we are going to breakdown disability insurance. We want you to be well informed of all your options. You have worked hard to get here-we want you to protect what you have earned and what you are going to earn in the future. Available to listen wherever you podcast and below.
More from the MLB Draft Podcast:
- Episode 1: The Draft Opportunity
- Episode 2: What’s My Number?
- Episode 3: Selecting the Right Sports Agent
- Episode 4: Selecting the Right Financial Team
- Episode 5: Tyler Beede on Navigating the Draft and Your Baseball Career
- Episode 7: How is Your Signing Bonus Taxed?
Erik Averill (00:01):
Welcome to the MLB Draft Podcast. I’m your host, Eric Averill, certified financial planner, certified private wealth advisor, former pro athlete, and the confounder of AWM. I’m joined by my cohost, former Major League Baseball pitcher and certified financial planner Travis Chick. Our goal on the MLB Draft Podcast is to provide you with the roadmap to successfully navigate the MLB draft, and becoming a professional athlete.
Erik Averill (00:30):
You’re going to hear from scouting directors, GM’s, agents, former and current players, elite performance coaches, and of course leading financial experts. What has traditionally seemed like a black box, we are going to bring to light the critical details you need to know to help you make the decisions that are in your best interest. So with that, let’s jump right in.
Erik Averill (00:55):
Hey everyone, welcome back to the podcast. We are excited to spend a few minutes with you today really talking about the first big business decision that you as an amateur family should be evaluating and making. And we’d like to welcome the expert in this conversation around disability insurance, former NBA eight year vet, second round pick by the way of the University of Kansas, Eric Chenowith. Eric, welcome to the podcast.
Eric Chenowith (01:23):
Hey Erik, thanks so much for having me on. I appreciate it.
Erik Averill (01:26):
Yeah, and really for the audience, the reason we’re so excited to have Eric on this conversation is number one, he is a former both collegiate and professional athlete, but it’s over the last eight years, he has been helping amateur athletes navigate this space of disability insurance, which has been an area very candidly that is very unknown and can be confusing at times. And you might hear some things in the news more around college football players in these disability insurance policies.
Erik Averill (01:58):
And so we really want to just bring exposure and education for both you, the athlete, and the parents around this subject. And so with that, Eric, would you mind giving a little background really just the way you think amateur families should be approaching the conversation around disability insurance? And for most people, just I think contextually Eric is… a lot of people probably never even heard of about disability insurance and don’t know what it is. So can you just really start with breaking down the basics for us?
Eric Chenowith (02:30):
Of course. Yeah. And again, thanks for having me on. Just some backdrop on me further as well. I was also a consumer of disability insurance when I played at Kansas my last year. I had a disability policy that I had to take out a loan for and I ended up paying the loan off once I turned professional. But I understand the insurance piece as a consumer, obviously now as a professional, working with student athletes and professional athletes with their disability insurance needs.
Eric Chenowith (02:55):
And so if any student athlete out there in college, typically for college baseball players specifically since we’re talking about baseball, if you’re in your third year of college, probably in your last year of college playing college baseball, and you feel like you have a chance to be drafted in the Major League Baseball draft, I, I urge you to be proactive about this and seek out what kind of coverage options are available for you.
Eric Chenowith (03:20):
The first step I tell everybody would be to get in touch with your compliance director in your athletic department office just so they can reach out to individuals like myself to get options put together for you. Just so you know, I work with over 60 schools nationwide for disability insurance, and the compliance directors and coaches are my first conversation always. And so obviously I’m going to advise again, speak to your compliance officers, see what they can get available for you. And then also I’m sure the coaches are involved in the conversations as well too.
Eric Chenowith (03:52):
Just to give you a quick update on the products that are available for baseball student athletes, the first product is permanent total disability, we call it PTD. It’s the cornerstone of our market. It’s basically career ending coverage for an injury or an illness. Examples would be you being in a car accident, or diagnosed with cancer, or having a shattered a limb. These things do happen, we’ve had claims paid out for permanent total disability, and so that’s the first starting point with coverage.
Eric Chenowith (04:22):
From there has been a couple of riders that you can add onto your policy. Most young college baseball players feel like they’re pretty invincible and that their career is not going to end due to an injury or illness, and so what Lloyd’s of London did is created one of two riders, one of which is actually not available anymore, but I will discuss it just so that we know what’s out there.
Eric Chenowith (04:43):
The first one being loss of value, loss of value. It came around about eight years ago when I got into the insurance industry after being a pro athlete. Basically the loss of value, the way it works is we’ll all agree on a projected spot in the draft where we think you’re projected, whether it be top 10 or top 20 and then from there assign with a threshold of which is about 50% of your projected rookie contract.
Eric Chenowith (05:06):
If you’re projected to be a top 10 pick, and that comes with a $5 million signing bonus, they will sign a $2.5 million threshold so that if you have an injury or illness and sign below that $2.5 million marker, then you would be in a position to collect the difference between the 2.5 and what you actually signed for. That product is now unfortunately no longer available for amateur pitchers, pitchers or position players, or just amateur baseball players in general just because the number of claims that were paid out in the past few years at my previous firms, specifically we had two claims paid out and they’re just very rampant just because college baseball players, especially pitchers are having Tommy John very often, and the arm injuries are very, very prevalent.
Eric Chenowith (05:52):
And number two, depending on how much a club has in their pool that they can pay their rookies with signing bonuses, there’s some discrepancies on, did somebody sign because they were for less because they were injured, or sick, or because there was not enough money in the pool and so the money got distributed differently. So what Lloyd’s did is they just said we’re not going to do this anymore, but they will offer permanent total disability, and there is a newer rider that we can do which is called critical injury.
Eric Chenowith (06:20):
Critical injury is broken up into two categories. The first category being a $250,000 benefit. The second category being $100,000 benefit. The first category includes a torn rotator cuff, a Tommy John procedure, ACL tear, Achilles tear, patella tendonitis tear, loss of sight, or cancer. You would, if you sustain one of those injuries or illnesses, you’ll collect a $250,000 benefit tax-free.
Eric Chenowith (06:46):
The second category is $100,000 benefit for torn major muscle groups such as a quadricep, abductor, bicep, tricep, or pectoral muscle. If you tear those, you will have a $100,000 benefit paid out to you. So sorry for the long answer, but the cornerstone is PTD, loss of value is no longer available for amateur baseball players, and critical injury is the newer product that is being secured by several college baseball players.
Erik Averill (07:17):
That was great. I appreciate obviously breaking down just what are the products available, and I know you specifically are talking about college baseball players. Are these products available to high school players that you know they’re in that weird transition, they maybe have committed to a specific school? They don’t technically fall under their compliance arm of that school yet and it’s like, what’s the landscape look like for the high school baseball?
Eric Chenowith (07:47):
Yes. These products are available for high school players as well too. I’ll be honest with you, I do not typically focus on that market of high school players just because for a couple of reasons. I mean, if I work with a family and they want to get coverage for their son, then by all means I’ll do my best to get them options, and we’ll get them covered for their last year in high school. Oftentimes families don’t have money to pay the premium, so they have to take out a loan. And so the last thing I want to ever have a young kid to make a decision based on a loan he took out to buy insurance where if someone’s a second or third round pick and the right decision is probably to enroll in school and take a scholarship, I’ve seen and heard in the past where someone might’ve bought a large insurance policy, took out a loan to buy the insurance policy, and they want to take a smaller signing bonus to pay off this loan they took out to buy insurance with.
Eric Chenowith (08:38):
So if the family is in a position to pay for the insurance and by all means help all support them. But I typically try to shy away from a situation where the family needs to get a loan just because then we’re making a loan decision opposed to a baseball decision on what they should be doing for their career, what’s best for them. And then secondly too, I always encourage, if I talk to a family and they say that they have $1 million signing bonus on the table, and they’re considering to take this $1 million signing bonus or go to college for three years, I encourage them to contact the school that they’re committed to, to discuss the school purchasing a disability insurance policy for them while they are on campus for three years.
Eric Chenowith (09:22):
If they’re going to get $1 million signing bonus and turn it down, it’s happened dozens of times with me where I’ll encourage them to reach out to the university. They’ll have a conversation with them saying, listen, I want to come to school, I want to get my degree, or get closer to my degree. I want to be a part of the program, but I also don’t want to give up $1 million, so let’s you know, agree that if I turn down this $1 million and do go to college, that you’ll buy me a $1 million policy while on campus. Once the school see this relatively small monetary commitment to this agreement, they typically agree to buy them coverage while they’re on campus. Considering the student athlete turned down a seven figure signing bonus to go play for their university. So it’s important for them to also speak to the universities about that option for them as well.
Erik Averill (10:09):
That’s actually very valuable to hear. It’s something that I actually don’t hear talked about very often and it seems like that should be a big part of the conversation when you’re making a decision to obviously forego a significant signing bonus and head to campus. One of the things that you referenced a few different times, and it makes a lot of sense of, you essentially don’t want an amateur high school family to be a prisoner to this premium payment for the loan. Can you talk about what these type of policies cost? And I know there’s sticker shock to families, and maybe talk about the right way to think about these policies as opposed to just being a really expensive product. Can you shed some light on that?
Eric Chenowith (10:57):
Yeah, sure. So right now I’m actually running a lot of college baseball coverage just with the season starting here pretty soon. So right now if you’re a position player, and you are in the field, the cost for coverage is going to be upwards of around 45 to $5,000. And so for a position player, it’s going to be like $5,000 per $1 million of permanent total disability coverage. Then if they were to add a critical injury rider as well to it, critical injury cost is going to be upwards of $15,000.
Eric Chenowith (11:33):
Now the reason why the critical injury is so much more expensive is because the chances of a player having one of these injuries is going to be significant. And so Lloyd’s is going to hedge their bet on that, and make sure that they’re going to be charging them a higher premium for that potential injury. And also too, it’s important to note that pitcher’s costs are double that of a position player. So if a shortstop cost $5,000 per million, a starting pitcher, or a relief pitcher, whatever time they come in the game, their premiums are going to be upwards of double that. Just because again, the staggering amount of amateur players having Tommy John procedures, and it’s not just Tommy John, it’s a shoulder issue or there’s always these young pitchers throwing their arms out so that the rates are going to be doubled for pitchers.
Travis Chick (12:19):
Hey Eric, this is Travis. Just kind of walk through, you know, this is obviously a big financial decision, but just kind of walk through how often you see these claims actually go through and get paid out.
Eric Chenowith (12:30):
Yeah, good question. They don’t happen often. I’ll be honest with you. And I always try to let people know that. And I can only speak for my book of business that I personally write. Because there’s no official tracking of all the Lloyd’s policies issued for sports, or baseball, or what have you. All I can do is base it off my book of business. And so for example, in 2019 I wrote about 150 sports cases. That’s across all four major sports, college and professional. So out of those 150 cases that I wrote, I have potentially one claim that’s going to be filed and paid. And so if you look at that, the chances are less than 1%. the year before I wrote about, I don’t know, 130 cases and I had two claims that were filed, and the claims are actually being completed, and being paid out right now.
Eric Chenowith (13:21):
And so if you just look at my book of business, it’s going to be less than a 1% chance that those claims going to happen. But they do happen. And I do have anecdotes of situations where I’ve had clients buy insurance and collect a significant payment in the high six figures, and into the seven figure ranges. And they’ve had good experiences with me and some of them had been able to go on and continue to play, because it was a loss of value injury, or a critical injury. But I have had, I had a college football player have his career and due to an injury. So they do happen. They do not happen often. I tell people that all the time. But the genesis behind all this is just to give an athlete that extra peace of mind to go out and perform, and play on the field, and do their job.
Eric Chenowith (14:10):
And I just go back to when I had a policy when I was in college, it did give me the peace of mind to jump up and try to block a shot, or dive on a loose ball on the ground or what have you. And so that’s the whole point of these. And so if we can give them a little extra peace of mind to go out and perform, then great. If something crazy happens and they have an injury illness that ends their career, hey, we’ll pull out the policy, file a claim, and support them throughout that process.
Travis Chick (14:35):
Yeah, I think peace of mind is fantastic, but just kind of walk us through, you know, timeline. I mean obviously this is something that’s important and every family should, if they’re in that spectrum to be able to be drafted this high, they should be considering it. But at what point is the decision, does it kind of need to be made? Should they start contacting you? Kind of walk us through that timeline.
Eric Chenowith (14:59):
I always suggest that is as soon as someone’s recognized as a potential professional athlete, they should be having a conversation about what’s available. Now that could be for someone who’s a high school senior that’s projected to be a top two round pick. They should be considering it when you’re in college, and the idea of being a Major League Baseball pick comes up, that’s when you did have the conversation.
Eric Chenowith (15:21):
So again, once you’re identified as a potential pro athlete, then you should be reaching out to your coaches, and your compliance officers on campus if you’re in college to see what is available for you. Now typically baseball players, for college baseball players, they secure their coverage right about now, right before the season, starting here in the next couple of weeks. Same thing with Major League Baseball pitchers and catchers reporting next week.
Eric Chenowith (15:44):
And so I’m writing a significant amount of Major League Baseball coverage for guys that are getting ready for the season. So always we want to cover guys as we head up to the season, all the policies are 24 hour-a-day worldwide coverage. So if they go home for a break, or if they’re traveling they’re covered on and off the field. But again, as soon as you are identified as a potential pro, let’s research it and see what we can qualify you for.
Erik Averill (16:08):
Eric, you’ve mentioned Lloyd’s of London a few times and obviously Travis and I know exactly what you’re talking about, but one of the themes in the insurance landscape, right, is I feel like most likely every family has a relationship with some type of insurance broker, some insurance company, and these parents might be familiar with disability insurance through their employer, if they’re self employed in these conversations, can you actually break down, is it important to work with someone like yourself who specializes with athletes or can anybody get access to a disability policy? Is Lloyd’s of London the actual company, or their carrier?
Erik Averill (16:50):
I know we’re going to nerd out here for a second, but one of the things I appreciate about you, right, I’ve been doing this for over a decade now and we’ve been working on disability policies over that decade with different providers. One of the first things you did with us a long time ago was breakdown and say, here’s just the landscape of the marketplace. There’s actually only so many companies providing this, and it all funnels through Lloyd’s. And I think it’s really important because there are people out there that are just going to sell insurance that actually are going to sell them bad products. So can you just walk through, who do you trust of identifying, whether it’s now or during your professional career to trust with your risk management needs, and what’s the landscape?
Eric Chenowith (17:36):
Great question. I appreciate the compliment. First of all, it’s not hard to get an insurance license. So you do see people trying to burgeon into the insurance industry all the time. And so obviously once you’re licensed and you have your insurance, you can go out and sell insurance. So that’s what’s great about the industry.
Eric Chenowith (17:51):
Now, there’s so many things about the insurance industry you don’t learn from getting your license. And that is the stuff that you need to learn by working with a reputable firm or partners. And so for me, people call me all the time about insurance, Hey man, I got 20 employees, I need health insurance for my employees. Okay, I have three guys that are great at that. Call these three people and they’ll take it from there. They’re like, well, why don’t you do it? You’re licensed to do it.
Eric Chenowith (18:18):
Well, that’s not my expertise. People call me, hey man, I just got drafted. I need an umbrella policy, or I need this, or you know, I need car insurance. Hey, yeah, great. You should do car insurance. You should get renters insurance. You should get an umbrella policy, call these three individuals, they’re going to take care of you. Well, why can’t you do it? Well, that’s not my specialty to do those types of things.
Eric Chenowith (18:38):
And so for me, the niche that I’ve been working in the past two years is the athlete space. And so I would hope that whether it’s an insurance professional that can do it or not, would recognize like, listen, I’m really good at home and auto insurance and I’m going to do this, and Eric’s the specialist in Lloyd’s disability insurance, then he should probably do that policy for you.
Eric Chenowith (19:02):
And so with that too, I’ll give you the dynamic of Lloyd’s as well too. So it’s important to know that Lloyd’s is not an insurance company. But I want you to think of Lloyd’s as like the federal reserve, or the biggest bank in the world, right. So nobody goes to the federal reserve for a loan. They go to Wells Fargo, Bank of America, US Bank, what have you. Same thing with Lloyd’s of London. You don’t go to Lloyd’s of London to get an insurance policy. You go to Lloyd’s of London and work with what are called cover holders, okay. Cover holders are a collection of syndicates. So if I go to cover holder ABC, right, that cover holder is a collection of syndicates that take out the risks on the policy.
Eric Chenowith (19:46):
And the way Lloyd’s started was back a couple hundred years ago in the old coffee shops. And what would happen was ships were going all over the world, whether it’s a tea ship, or gunpowder ship, or livestock, what have you. Well these ships would sink. And so they needed to find a way to insure these ships. And so what would happen is a boat captain would walk up to a wall and write his boat name, and draw a line. And then the rich people in the pubs would walk up and below that line write, or underwrite, which is where the term underwriter came from, 20% the next person would write up and write 30% until it all adds up to 100%. that is what they call their facility, they call it their slip. That’s basically the order. And all those individuals that write their name on there are what are called syndicates.
Eric Chenowith (20:33):
So those collections of syndicates are holding all the risks with the cover holder through Lloyd’s. And so with me, if you reach out and say, Hey Eric, I got a second baseman who’s in a contract year, what should he be doing for coverage? I will go to six Lloyd’s of London cover holders and I will get six different quotes, which will come with six different pricings, six different wording, policy wording, six different limits of coverage. Everything is different. And so we’re doing an apples to apples comparison, but it’s going to be a Macintosh Apple versus a written in a red delicious apple, what have you. And that’s when we get into the policy wording and see what we feel best and most comfortable with.
Eric Chenowith (21:14):
Now, each company has different wording. And so there’s some red flags out there. There’s some companies that have a degenerative exclusion. There’s companies that have segregation wording where a third party can be pursued for a claim. There’s a limit of indemnity where if you have two different policies that you can only max out on coverage on one. There’s several more different things that doing this for eight years, and getting fielded, you know, lots of questions from attorneys, or athletes or, financial planners, and what have you, I know these policies in and out and so I can go through them and explain the spirit of all these policies, and how they actually work.
Eric Chenowith (21:53):
So back to my original point, if someone’s newly licensed and they want to burgeon into this market, that’s great, but are you a real expert in what you’re doing? Are you going to make sure that you can give sound advice to a player who’s, this is their livelihood. And so if something goes wrong, be prepared for that. And so with me, like I said, my specific specialty is working with athletes for their disability insurance and the life insurance. And so I feel very comfortable in those conversations.
Eric Chenowith (22:27):
And also too, even further, I have deep relationships with all these cover holders for Lloyd’s of London. I send them millions of dollars in premium every year. I’ve had claims paid out with them, I’ve been to London to meet with them at Lloyd’s, and I’ve sat at the box, and I’ve stamped policies with them, and they’ve come out here and met with us. And we’re constantly working together as a true partnership to number one, make sure we’re providing robust coverages for athletes. And number two, to make sure that the market’s preserved and that we continue to do this forever, because like we just saw with loss of value going away for amateur athletes, we want to make sure that PTD stays here. We want to make sure that CI stays here, we want to make sure we’re doing this the right way so we can continue to do this for a long time.
Eric Chenowith (23:14):
And we’re not going to do that if there’s mistakes being made and policies issued that should not have an issued. And so again, my niche is the sports space with Lloyd’s, and that’s where I feel most comfortable.
Erik Averill (23:26):
That was fantastic. Thank you. And you hit on the thing I’ve really wanted to drill down on was the importance of the actual language, right. It’s the one thing that none of us enjoy doing is actually reading all the fine print. But as we know, insurance companies are not trying to hand out cash. And so as we’ve worked through so many policies together, you’ve educated us on, hey, here is where this language is different from that policy. And yes, that one’s got a cheaper premium, but here’s why.
Erik Averill (24:02):
And so I just think navigating that space is so important. And we’ve talked earlier on this podcast, whether it’s your agent, or your private wealth advisor, your CPA, expertise matters, right? The analogy we always use is you’re not going to just have some orthopedic surgeon perform your Tommy John, right, it’s going to be Andrews or Albatross. And there’s this specialization.
Erik Averill (24:24):
And so being sensitive to time, I really appreciate you giving us this information. I’m going to put your contact information and everything in the show notes so that people listening, whether it’s the agents, it’s the parents, it’s the players, maybe it’s coaches, or compliance departments, that they can reach out to you. But before we go, what are some last imparting words that you would give to these players that are headed into the draft?
Eric Chenowith (24:52):
I just tell people all the time, make sure that you, number one, protect what you’ve earned so far, and protect what you’re going to be earning. Because as a young athlete, you spent the last 10 plus years getting to where you’re at now. And you’re 12 to 18 months away from a significant change in your life with a Major League Baseball contract. So protect what you’ve earned now, once you do. make it, protect what you’re going to make next.
Eric Chenowith (25:19):
And so we see that all the time where we see what pitchers are signing for upwards of a hundred plus million, even in $200 million ranges, I just encourage people, protect what you’ve earned and protect what you’re going to earn.
Erik Averill (25:30):
That’s great. Well thanks again Eric for your time, and really appreciate it. And for all the listeners, thank you once again for your guys’ attention. Hopefully this has been valuable for you. Our goal is to continue to provide excellent resources for you, and help you make the best decisions. And so until then, have a great day and we look forward to you joining us on the next episode of the MLB Draft Podcast.
Erik Averill (26:01):
Hey, thanks so much for listening to today’s show. We hope that you enjoyed it. Our goal here with the MLB Draft Podcast is to make this the go to resource for all families and athletes looking to take their career to the next level. And so this show really is all about you, and we would love to hear from you. Are there any questions you have, topics that you would love for us to cover, please do reach out. You can shoot us an email at firstname.lastname@example.org, or email@example.com.
Erik Averill (26:34):
Of course, you can find us on social. We’re on all the major platforms at Athlete Wealth. And if you’d like to set up a phone call with us, you can reach us by going online to athletewealth.com, and you’ll see right at the top of the page, there’s a button where you can schedule a call directly with us. And so we would love to hear from you and until next time, stay focused, stay hungry, and be a pro.