The “Student-Athlete Disability Insurance Program” isn’t what the NCAA cracks it up to be

Last month, Kentucky freshman Nerlens Noel tore his ACL. His injury highlights several issues associated with college basketball, particularly the financial risks of athletes participating under the NCAA’s amateur banner.

In order to protect players, the NCAA offers what it calls the Exceptional Student-Athlete Disability Insurance Program. This program “helps” elite college athletes – those who will likely earn millions from careers in professional sports – get insurance in the event that an injury causes a playing career to end.
This is a good thing, right? Wrong. When it comes to the NCAA, things are nearly as good as advertised.

Let’s go to when the original program was first established in 1990. Back then the motivation was just to protect its amateur athletes, not from injuries but from agents. The NCAA, athletics and coaches were concerned that agents were providing money to players to purchase insurance. Providing a legitimate, above-board way for college players to get disability insurance seems like a good idea. Sounds reasonable, right?

Let’s take a closer look. In the late 1980s, Dick Schultz, then working as athletic director at Virginia, lobbied to pass NCAA legislation that would allow athletes to take out loans to purchase these insurance policies.

In a later lawsuit, it was revealed that Schultz was paid $120,000 by American Sports Underwriters, the NCAA’s exclusive insurance company. By the time the lawsuit was filed, Schultz became the NCAA’s executive director, succeeding Walter Byers. Schultz abruptly resigned in 1993 due to questionable dealings while he was athletic director at University of Virginia. According to a report, “At least five people have said that Schultz lied about his involvement in improper interest-free loans made to athletes at the University of Virginia when he was athletic director there from 1981 to 1987.” In other words, agents aren’t the only ones working to put cash in the pockets of college athletes. Shocking.

NCAA rules prohibit athletes to borrow money based on future earnings. The one exception they can borrow money through the NCAA’s “Exceptional Student-Athlete Disability Insurance program,” which allows athletes to borrow money to pay premiums on disability policies. Think about how this works: For the pleasure of making your school and the NCAA millions of dollars, you agree to pay back $50,000 or so to have some peace of mind. I would call that a racket.

Policies available through the NCAA are capped at $5 million and through independent insurance agents. If an athlete goes to an outside insurance carrier, they are no caps on the policy. Athletes who borrow money to buy insurance must pay back the money, with interest, regardless of whether they sign a pro contract. Ouch.

In order to participate in the NCAA-sponsored insurance program, NCAA athletes must be projected to be drafted in the early rounds. Private insurers use similar guidelines in determining whether to offer this type of policy, as do banks in deciding whether to loan athletes money to pay the premiums.

These insurance policies pay out only in the event of an injury or illness that ends your pro career before it starts. They do not pay if you are able to play despite an injury or illness that diminishes your skills, lowers your position in the draft, or causes loss of a pro season while recovering from an injury. As a result of advances in medical treatment, career-ending injuries are rare. For example, most anterior cruciate ligament (ACL) injuries now keep a player out for eight to 12 months but rarely end careers.

Several years ago, I asked the NCAA to provide details about its insurance program, including how many claims have paid out. The question I posed: “How many policies have paid out? The NCAA’s official response: “We are not allowed to disclose this information.” My reaction? Wow. In a subsequent email, the NCAA’s Erik Christianson cited confidentiality concerns and agreements with its insurance providers. That is even more outrageous. Players and their families should be provided with full access to historical data on these policies, including how many policies have been purchased, how many claims have been made and how many have been paid out? Of course, hiding behind confidentiality is yet another stark reminder who the NCAA really works for. Hint: It’s not the “student-athlete.”

The NCAA has stated to the press that “less than a half dozen claims have been made.” Of course, there’s a big difference between filing a claim and actually collecting. In the history of the NCAA program, which was initiated in 1990, a media search revealed only one instance of a payout: In 1998, Ed Chester, a Florida defensive tackle who severely injured his knee, collected $1 million on a policy that cost him $8,000.

Bona-fide pro prospects who forgo millions of dollars in order to stay in school need information to help them consider if it makes sense to purchase disability insurance. My belief: This type of insurance is beneficial, but insurance companies charge too much relative to the actual likelihood of a career-ending injury. But as long as the NCAA withholds vital information, athletes cannot make a truly informed decision. For those who have potential to earn tens of millions or more as a pro athlete, disability insurance can be worth it, if only for the peace of mind it provides.

My solution: Allow schools to pay the insurance premium for any elite athlete it wants. If a school is willing pay $50,000 to $70,000 for a $5 million disability policy, let them. What a great incentive to keep players in college a year or two longer. Further, if schools were allowed to purchase these policies, I believe the cost would go down dramatically. Why? Since the NCAA has been so opaque about these policies, my hunch is that the NCAA’s exclusive insurance carrier is lining its pockets preying on uninformed college athletes.

After Noel’s injury, John Calipari made the same argument in starker terms: “My problem with the insurance is the players have to agree to pay the premiums for it to receive it. Why wouldn’t the school or the NCAA, which is making billions of dollars, make sure that those kids that come to school and have that opportunity to be drafted are insured? Why would we make the players pay for that? The only option then is for them to take a risk and potentially jeopardize their entire career.”

Maybe one day the NCAA will do what is right for athletes. More likely, the NCAA will continue spinning this insurance program as a good thing and blasting those of us who claim otherwise.