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

Insuring student-athletes: what are the federal income tax implications of schools buying disability policies?
Tuesday, 11 February 2020 By Richard Giller, James Chudy , Hannah Hollingsworth

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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Written by

Richard Giller

Richard Giller

Richard Giller is a partner in the Los Angeles office of Greenspoon Marder LLP and is the head of the firm’s Insurance Recovery and Counseling practice. He concentrates his practice on recovering insurance benefits from recalcitrant insurance companies on behalf of his institutional and individual clients. Mr. Giller has represented policyholders all over the U.S. and has successfully secured hundreds of millions of dollars in defense costs, settlements, and indemnity payments on behalf of his clients. Besides advising Fortune 500 clients, Mr. Giller represents collegiate and professional athletes, professional sports teams, and entertainers in securing payouts under various insurance products including permanent total disability (PTD), temporary total disability (TTD), and loss-of-value (LOV) insurance claims. Mr. Giller has also successfully obtained recoveries under event cancellation insurance, cast and crew insurance, and other entertainment-related insurance policies and coverages.

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.

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