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?
Published: Tuesday, 11 February 2020. Written by Richard Giller, James Chudy , Hannah Hollingsworth No Comments

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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About the Author

Richard Giller

Richard Giller

Partner, Pillsbury Winthrop Shaw Pittman LLP (Los Angeles)

Richard Giller focuses his practice on recovering insurance benefits from reluctant insurance companies on behalf of his corporate and individual clients.

With more than 30 years of experience as an insurance recovery lawyer, Richard counsels for his clients in complex insurance and commercial matters and, when necessary, crafts litigation strategies to protect his clients. He has represented policyholders all over the country and successfully secured hundreds of millions of dollars in defense costs, settlements and indemnity payments on behalf of his clients. Richard is a strong advocate for policyholders in cases involving nearly every type of insurance coverage.

In addition to representing corporate clients, Richard also represents collegiate and professional athletes, professional sports teams and entertainers in connection with permanent total disability (PTD), temporary total disability (TTD) and loss-of-value (LOV) insurance claims, as well as securing workers’ compensation benefits for professional athletes. His sports insurance clients have called him “the foremost expert in the area of sports insurance,” noting he’s “a pleasure to work with.” He also has significant experience in matters involving event cancellation and other types of entertainment insurance claims.

Colleague Eric Chenowith, Owner of Leverage Disability and Life Insurance Services recently said, “In a world where insurance consumers are often misled by unscrupulous brokers and disregarded by carriers during claims, there is Richard Giller to keep them honest. The past six years I have had the honor to get to know Richard professionally and personally. This time has allowed me to attest to his character, work ethic and integrity. Most importantly, he arms me with confidence to pursue my career as the country’s leading Lloyd’s sports Insurance producer knowing he is there to deploy if a claim is ever unreasonably denied.

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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