Insuring student-athletes: what are the federal income tax implications of schools buying disability policies?

Published 11 February 2020 By: Richard Giller, James Chudy , Hannah Hollingsworth

Insuring student-athletes: what are the federal income tax implications of schools buying disability policies?

Over the past few years, more and more colleges and universities have been doling out tens of thousands of dollars to purchase disability insurance policies on behalf of individual star athletes.  The schools are using money earmarked for student-athletes with special financial needs received from the National Collegiate Athletic Association (NCAA) to pay for these policies. Many view this development as a windfall for those students on whose behalf the insurance policies are purchased.  However, until now, an important issue regarding this process has remained unresolved: what are the federal income tax implications when a school pays the disability insurance policy premiums for a student-athlete?  This article provides a first-of-its-kind analysis regarding those tax implications. Specifically, it looks at:

  • The growing trend of schools purchasing ‘permanent total disability’ (PTD) insurance and ‘loss-of-value’ (LOV) insurance;
  • The NCAA’s disability insurance programs for student-athletes;
  • Who pays the policy premiums for PTD/LOV insurance coverage?
  • What are the Federal income tax implications for athletes?

 

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Author

Richard Giller

Richard Giller

Partner, Pillsbury Winthrop Shaw Pittman LLP
 
Pillsbury Insurance Recovery & Advisory partner Richard Giller represents collegiate and professional athletes, professional sports teams and entertainers in connection with permanent total disability, temporary total disability and loss-of-value insurance claims, as well as securing workers’ compensation benefits for professional athletes. He is based in Los Angeles.
James Chudy

James Chudy

Global Head of Tax, Pillsbury Winthrop Shaw Pittman LLP

The leader of Pillsbury’s global Tax practice, James Chudy advises domestic and international clients on federal income tax aspects of mergers and acquisitions, spinoffs, bankruptcy reorganizations and business restructurings, corporate finance, securitizations, private equity investments and digital currencies. Based in New York, he also provides strategic counsel to emerging companies and individuals.
Hannah Hollingsworth

Hannah Hollingsworth

Associate, Pillsbury Winthrop Shaw Pittman LLP
 
Hannah Hollingsworth is an associate in Pillsbury’s Tax practice focusing on the tax implications of lending and investment transactions by businesses.