The $3,000,000 Knee Loss-of-Value Insurance Policy

The NCAA defines Loss-of-Value insurance as “insurance that protects a student-athlete’s future contract value from decreasing below a predetermined amount due to a significant injury or illness suffered during the policy’s designated coverage period.”

University of Michigan tight end Jake Butt took the high road by playing in the Orange Bowl, but he paid the price for his dedication to his school – and lost a first-round draft pick – when he blew out his knee in what was essentially a meaningless game. To avoid injury, Leonard Fournette and Christian McCaffrey decided to forego their chances to compete in bowl games, and Butt tore his ACL.

But he did have an insurance policy to fall back on.

What’s the silver lining to all of this? Butt had the foresight to purchase an insurance policy, which proved to be very wise.

When the Denver Broncos finally took a chance and selected Butt with a fifth-round pick, the tight end earned $543,000 in tax-free earnings. Butt’s projected draft position dropped, resulting in the payout. His insurance policy paid out $10,000 for each pick after the middle of the third round, and if Butt had dropped even further, his “loss-of-value” insurance policy could have paid out up to $2 million.

Insiders say that if Butt had skipped the bowl game and stayed healthy, he would have been a top-75 pick and could have been selected in the first round, but his insurance policy meant that he was making money as each pick passed. According to ESPN, the Broncos got a steal if the tight end’s ACL recovery goes as planned.

Last year, Keith Lerner wrote a similar policy for Willis McGahee, and he said the industry has changed dramatically, with players opting for “loss-of-value” insurance. According to Lerner, schools are willing to cover the cost of premiums. Lerner and his son spend a portion of each year visiting schools to present top pro prospects with insurance options during their draft-eligible year through their company, Total Planning Sports Services.

Lerner is well-versed in the industry, having written policies for the last three Heisman Trophy winners – Jameis Winston, Marcus Mariota, and Derrick Henry – as well as Oregon cornerback Ifo Ekpre-Olomu.

When his draft position dropped due to an injury, Ekpre-Olomu became the first football player to collect on a loss-of-value policy. When he tore his ACL and dislocated his knee in December 2014, he was regarded as one of the top cornerbacks in college football. After falling to the seventh round of the draft, Ekpre-Olomu was eventually paid $3 million by underwriter Lloyd’s of London.

(Getty Images photo by Gregory Shamus)

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