High-limit disability insurance for MLB athletes—and what it means to you

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High-limit disability insurance for MLB athletes—and what it means to you
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When Washington Nationals pitcher Stephen Strasburg injured himself Wednesday during a game against the Braves, his ball club may have started to consider a specialized insurance policy to pay for the ace thrower’s future contractual wages.

Strasburg is one of the most highly compensated pitchers in the history of the game, with a seven-year $175 million contract beginning in 2017. There’s no telling when he’ll will make it back to the mound—this season, next season or longer perhaps. Though all indications suggest he just a case of ‘pitcher’s elbow’ that should resolve pretty quickly, according to The Washington Post.

But Strasburg’s injury does shed some light on a little-known part of the insurance world: High-limit disability insurance. If he were to miss around 60 games and Washington had such a policy in force, then the ball club could collect on it to help pay his contract in part.

Not surprisingly, there are companies that cater to clientele like MLB players and others who require these kinds of policies. Read on for a few facts about this field…

Who writes these high-limit disability insurance policies?

Pro Financial Services (PFS) is one such company that underwrites policies for sports figures, entertainers, highly compensated business professionals and physicians/surgeons of all stripes. PFS has relationships with underwriters like Chubb, Everest and Lloyd’s of London.

Which leagues buy these policies?

The Washington Post reports that the NBA and NHL have mandatory insurance policies that clubs buy into. Those policies typically insure the five most highly compensated players per team in the event their injuries prevent them from playing a specific consecutive number of games. For example, that number is 30 consecutive games in the NHL.

MLB clubs, meanwhile, are under no such league mandate to buy one of these insurance policies. It’s strictly up the discretion of individual teams.

How much are premiums on these kinds of policies in MLB?

The typical industry rate for MLB is somewhere around 3% of a position player’s contract and 7% of a pitcher’s contract.

What factors weigh into setting premiums for MLB clubs?

  1. Contract costs: The dollar amount of the contract the team wants to insure.
  2. Contract length: The Washington Post reports insurance usually comes in two- or three-year policies, not the six- or seven-year contracts favored by MLB.
  3. Position: Pitchers can cost up to three time more to insure as position players.
  4. Age: Like with any insurance policy, the cheapest time to insure someone is when they’re young and healthy.

What does this all mean to you?

It’s helpful to remember why Clark says disability insurance is a must in your life—even if you’re not a high-performing athlete!

Throughout your working lifetime, you are three times more likely to become disabled than you are to die before age 65. But people are confused by disability insurance. There are so many terms to wrestle with that people just throw up their hands and say, ‘I give up. I’m not buying!’

If that sounds like you, read this primer to get up to speed and plot your next move if you’re looking at buying disability insurance.

Know your PDQ

You can visit WhatsMyPDQ.org to assess your ‘personal disability quotient’ (PDQ). This a free service of the Council of Disability Insurance. Your PDQ will predict the likelihood of you needing to use disability insurance during your working lifetime.

Should you buy your own policy or get it through work?

Clark has advised people to buy their own disability insurance policy if they make north of $200,000 a year. If you make less than $200,000 like most average Earthlings, then you want to take the group disability policy through your employer.

Too often people will skip buying disability insurance and think that Social Security disability will help them if needed. Social Security disability won’t help. It doesn’t pay a big benefit and it’s much more difficult to qualify for than a group policy provided through your employer.

Do your background research

Whenever you’re considering buying disability insurance, it’s good to do some background reading on this kind of policy. The Wall Street Journal recommends sites like PolicyGenius, Disability Insurance Resource Center and Disability Insurance Quotes as good unbiased sources of info. You can also get a quote through these sites too.

Find an insurance agent

Whether you use the sites mentioned above for a quote or you decide to look elsewhere, one this is certain: You’ve got to get more than one quote. Find an insurance agent, preferably one who can give you quotes from multiple providers. Disability Insurance Services is a good starting point to find a broker. Another route is to get a recommendation from a fee-only financial adviser through Garrett Financial Planning Network. Or you can always call an insurer and ask for a local broker.

Make sure your policy covers your specialty

Whether you’re a physical therapist or a construction worker, be sure that the policy your eyeing covers your skill — in case you are unable to perform your specific job duties.

Buy at 60% of your current pay

Get a disability policy that begins making payments three or six months after you are disabled and continues until age 65. Buy coverage that’s equal to 60% of your current pay before taxes because that will approximate what you’re taking home after taxes.

Be sure the insurer is strong

You only want to consider companies that have been rated ‘A++’ by A.M. Best, which means they are of the highest financial strength.

Get a final opinion before signing on the dotted line

Buying disability insurance is an important decision. You’ll probably want another set of eyes on the policy terms to make sure everything is kosher. That’s where a disability claims consultant comes in. They’ll help you make sense of the legalese and make sure it’s in your best interest. Google ‘disability claims consultant’ in your area and pay attention to the reviews, if there are any.

Read more: 2 ways to guarantee yourself a lifetime stream of income

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Theo Thimou About the author:
Theo is director of content for clark.com. He has co-written 2 books with Clark Howard, including the #1 New York Times bestseller Clark Howard's Living Large in Lean Times.
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