I remember when I first signed. I thought I was invincible. I was 18 with millions of dollars coming my way and a clear path toward achieving my dream.
Protecting my downside was the last thing on my mind.
Yet, risk management for professional athletes is one of the biggest keys to building wealth. I talked all about why downside protection is important in our guide to athlete wealth management but it is also critical for all aspects of your life.
The reason why is simple ~ Google your name.
You will have more publicly available information than 99.9% of the population.
That my friends, makes you a target. You are a walking dollar sign for the person with bad intentions.
The good news is you can protect yourself.
In this blog, I am going to talk through all the ways professional athletes can protect themselves through risk management.
Risk Management for Professional Athletes
Risk management has a fancy ring, so let's think about it a bit simpler.
What are all the things that could go wrong?
What do we have to lose if they do go wrong?
What are the odds of that thing going wrong?
What are the ways to protect myself in the event they do?
Risk management is answering those questions. Look everything in life has risks but there are certain risks for professional athletes that can be avoided.
The three biggest risks are something happening to things you own, your life, and your career.
The three types of insurance we are going to discuss to protect against them are:
Property & Casualty Insurance
Specialty Insurance
Life Insurance
In athlete wealth management, you want to ensure you have a financial team that understands the nuances of what coverages professional athletes need.
Property & Casualty Insurance
Everyone always thinks of the big risks but I am always thinking about the small ones (that could become big).
This is where property & casualty insurance comes in.
This is coverages for things like:
Cars
Homes
Excess Liability
You know all the things that you think, "That won't happen to me."
Before you gloss over this section understand this, property and casualty insurance is not created equal.
As in just because you have car insurance doesn't make it all the same. As a professional athlete, you want the best coverage for the best price ~ not the lowest cost.
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Car Insurance
Risk Protected: Car insurance covers your vehicle, any affected vehicles, medical payments, and further liability.
Key Factors: Car insurance typically reads like this amount covered per person/amount covered per accident/amount covered in property damage. Each state has a minimum coverage amount required by law. These amounts are often very low and athletes should consider far higher amounts.
Example: If your car insurance reads 100/200/50 that means you have $100,000 per person in the event of an accident, $200,000 total per accident, and $50,000 in property damage.
Let's imagine for a second you run into a new $110,000 Cadillac Escalade and total it. You would be potentially out of pocket $60,000 since your property damage is only $50,000.
What I Have: As with everything we do, I eat my own cooking. The same thing I recommend to our athlete clients is what I do. I have 500 across the board for my car insurance. This means I have $500,000 per person, $500,000 per accident, and $500,000 in property damage.
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Homeowner's Insurance
Risk Protected: Your home is one of your biggest financial assets, homeowner's insurance protects both the structure and the contents.
Key Factors: While there are a million factors to consider here I want to focus on just two. The replacement cost and the type of policy. Remember not all insurance policies are created equal. Your homeowner's policy will have a stated replacement cost. This means if your house burns to the ground this is the maximum the insurance company will provide you.
It will also most likely be one of two types of policies, an HO3 or an HO5 policy. An HO5 policy is a higher-end policy that provides the homeowner with specific details that would be redone the way they were (think high-end brickwork or landscaping).
***There are endless clauses athletes need to ensure are correct for proper coverage. This is why we always review our client's policies.
Example: If your replacement cost is $1,000,000, something happens, and the cost to rebuild exceeds that amount you will be out of pocket for the difference.
What I Have: I have an HO5 policy that covers my home for more than the state value. The reason is simple, the additional benefits/peace of mind outweigh the slightly higher costs.
*** Athletes should also have a renter's insurance policy for in-season rentals.
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Excess Liability
Risk Protected: Excess liability coverage or umbrella coverage is an overachieving form of insurance that covers your risk above and beyond your other policies.
Key Factors: My belief is nearly everyone should have an umbrella policy as they are a cost-effective way to cover big risks. For many of our professional athletes, their policies are near their total net worth.
Example: If you were to have a car accident causing serious injury and were sued. Your auto policy might cover you up to $500,000 but any judgment above and beyond that would be your responsibility. A properly structured umbrella policy covers that excess risk.
***For professional athletes you need to have your financial team that does a deep dive into any exclusions a policy might have.
What I Have: I have a $10,000,000 umbrella policy as it is one of the most cost-effective ways to protect my family's wealth.
Life Insurance
In athlete wealth management, one of the biggest red flags athletes face is getting pitched life insurance they don't need.
Say it with me, "Life insurance is a tool to solve a need."
You have to have a need first.
My number one rule for athletes is this: If you don't understand the costs, fees, and structure don't do it.
I start with this because there is a lot of money to be made selling life insurance. With any solution that makes the professional a lot of money, it will be misused.
Now this does not make it a bad product ~ I would say the vast majority of professional athletes will need life insurance at some point.
The key is finding a true pro that specializes in risk management for athletes. Done correctly there are incredible use cases for life insurance.
To illustrate when life insurance is needed, consider my personal use case:
I went from having no one depending on me (draft day) to being married with four beautiful kids (10 years later). I want them to be protected should something happen to me. That is the goal of life insurance ~ transfer the risk from you to the life insurance company.
Two Key Types:
Term Life Insurance - This covers you for a certain period (think 10, 20, or 30 years).
Permanent Life Insurance - This covers you for your entire life (assuming premiums are paid).
What I Have: I have two term life insurance policies that would provide my family enough money to live the same lifestyle today if I wasn't here. I don't own any permanent policy as I currently don't have a need that a permanent policy would solve. There could be a need in the future in which a permanent policy could make perfect sense.
Insurance is just that, insurance. You will be pitched countless "insurance ideas", always revert to rule number 1 ~ If you don't understand the costs, fees, and structure don't do it.
The starting point for life insurance is determining your need. What risk do you want to eliminate? Then determine the best solution for you to solve that need.
Specialty Insurance
The single biggest risk any professional athlete faces is a career-ending injury. Your body and your skillset are your ability to earn income.
While a typical high-earner might get a disability policy, your potential options need to be (and are) hyper-specific to you.
Disability policies for professional athletes come in two types:
Permanent Disability - An injury occurs that does not allow you to continue to play your sport.
Temporary Disability - An injury occurs that does not allow you to play your sport for a certain period.
There is incredible nuance in these policies, structuring, and costs. Professional athletes need an expert in athlete wealth management to determine the best options.
The second form of specialty insurance athletes should consider is loss of value policies.
A loss of value policy covers an athlete if they don't receive the future contract they expected.
***These often come into play before the draft or a contract year.
Just like with disability policies, it is important athletes understand all the costs, structures, and provisions in a loss of value policy.
These policies are one-off policies customized to the specific athlete. The language stated in the contract is key to understanding what needs to happen for an athlete to get paid.
Specialty insurance for professional athletes is hyper-specific to an athlete's situation and not every athlete needs these coverages.
The key is understanding your options, risk factors, and ways you could transfer that risk.
No one thinks it will happen to them until it does (insert the risk).
Yet, each year we see athletes face lawsuits, accidents, and other liabilities.
The key is answering these four questions:
What are all the things that could go wrong?
What do we have to lose if they do go wrong?
What are the odds of that thing going wrong?
What are the ways to protect myself in the event they do?
One of my favorite lines is ~ plan now or regret it later. That couldn't be more true when it comes to risk management for professional athletes.
If you are a professional athlete looking for a financial team specializing in you schedule a call and talk to a Moment founder.
Not sure what questions to ask, check out this video on 10 questions you should ask when interviewing a financial advisor.
Get in Touch With An Advisor
Frequently Asked Questions
Here are some answers to questions I received frequently about this topic.
1. Does Moment Private Wealth sell insurance?
Moment does not sell insurance but advises on all insurance for clients. This allows us to be free of conflicts when recommending certain types of insurance products.
2. How do insurance agents get paid?
Insurance agents are paid a commission based on the type and amount of a product you purchase. It is our advice that you always ask the agent to list out their commission for any product you are considering.
3. Are you a fiduciary?
Moment Private Wealth serves clients as a fiduciary 100% of the time.
4. How does Moment Private Wealth make money?
We are only paid in one transparent way, by our clients. We receive no kickbacks or participate any profit-sharing arrangements. Our fees are simple, transparent, and clear for our clients.
5. How are you different than other financial advisors?
We are specialists in working with professional athletes and entrepreneurs. We limit the number of new clients we take on. This allows us to provide unparalleled value and highly personalized service to professional athletes. We work as a team to service our clients. We believe in building a team of “A” players. This ensures our clients receive world-class tax, estate, insurance, and investment strategies. We focus on educating first, then executing.
*Moment Private Wealth offers information on tax and estate planning that is general in nature. Tax and Legal advice are not provided by Moment Private Wealth. Consult an attorney or tax professional regarding your specific legal or tax situation.
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