Celebrities and athletes have been known to take out expensive insurance policies on all kinds of body parts including legs, hands and vocal chords. College athletes are even beginning to take out loss of value insurance policies in the event an injury causes them to fall in their professional draft. Chuck and Grant dissect the insurance opportunities behind the bright lights and fame and discuss how the average citizen can find similar protection in their own career.
Below is a transcript of the episode, modified for your reading pleasure. For more information on the topics discussed in the episode, see the links at the bottom of this post.
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Grant FINLEY: Welcome to Your Insurance Connection Podcast, I'm your host, Grant Finley and joined once again by President of CLH Insurance, Chuck Hembree. Chuck, always good to see you. How are you?
Chuck HEMBREE: Good, Grant and I'm looking forward to your discussion today. I saw you're going to discuss and this sounds like some good fun.
FINLEY: I hope so. Essentially, I noticed before the college bowl game season, we had some big names deciding that they didn't want to play in the bowl because they didn't want to get injured, they wanted to prepare for the NFL draft, etc. and so, I started thinking how more and more you're seeing college athletes and just people in general, insuring body parts or insuring their place in the NFL draft, as an example. I thought, "well, now that's interesting, and I'll bet there's some interesting things that we can dive into." So, let me just start by listing some of these celebrities who have insured body parts. So, Mariah Carey who's insured her legs, Jennifer Lopez has insured her rear end, Taylor Swift with the legs, Bruce Springsteen, the Boss, with the vocal cords, Dolly Parton, I think you can guess what she's insured, Keith Richards's hands, David Beckham and Cristiano Ronaldo - their legs, obviously they make money with their legs playing soccer, Julia Roberts insured her teeth?! It's all over the board. Is this similar to disability insurance or death and dismemberment? How can somebody just get a body part insured and is it different from those coverages I just mentioned?
HEMBREE: Well, obviously we don't go down and ask our standard companies to go out and insure for that. They don't have the expertise and they don't have the product that we need in order to take care of these types of situations. These are very specialized, obviously and the names of the people you read have the wherewithal to afford those types of coverages, because depending on how they're structured they can be very expensive. Let's think about the nature of what they're trying to protect. They're protecting image, reputations, skill, and all of them are tied to the amount of income that they receive. Why do we want to insure a leg or an arm? It affects our ability to bring in income to ourselves. You and I may not have the type of body parts that need insuring like that but we may have particular talents and so forth and that's why we see certain people insuring their vocal chords because without those vocal chords, their ability to bring income would cease or be greatly diminished. If we didn't see Mariah Carey's legs, or - I always, when I think of that I always think of Tina Turner. So, they're protecting their brand and their ability to bring in income. These are highly manuscripted policies and when I mean manuscripted, they're not the standard policies we would print off for homeowners or for auto or for commercial insurance. They're generally written by underwriters who have a lot of great skill and acutaries that can help them in this area. Let's talk a little bit about what would happen if somebody wants their arm - Peyton Manning wants his arm insured. I guess he doesn't now but he did at one time. Well, first of all that person has to have in mind an amount that they want protected. Well, they're pretty hefty in price so there always has to be a dollar amount guaranteed because of that arm being in the shape that it needs to be and we're usually talking about accidental injury because I remember when I played sports, I may have had a great rocket arm from short stop or third base to get it over to first base and I didn't suffer any accident or injury but the older I got the less was my ability to rocket it across that field like I did when I was younger. So, we're not insuring the downturn or wear and tear of the body but we're insuring for accident to that body part. So, actuarially, we can figure out what the chances are that something's going to happen. What is the limit that we're going to need to protect, and then most of those policies will have provisions. "Yes, we will protect for this amount for an accident to this body part, but you can't participate in these types of activities," and obviously they're going to be things where they can't get hurt. We've seen situations where people have bought coverage, they may not be quite the celebrities you mentioned, but they bought coverage, pro football players do this on a regular basis, so that they're income earning years can be protected but they can't participate in unauthorized sports and/or sporting activities and when they do and they're hurt, and we've seen that happen several times, the policy is voided and they are not able to collect.
FINLEY: Right, so disability insurance with athletes is only getting larger and larger as young players will insure their bodies where if they have a career-ending injury they'll collect. But another one that's gaining a lot of steam lately is called loss of value insurance and this one has only been paid out once or twice from the research I was doing on it but essentially, what can happen for those who don't know is that a player, and I think we saw this with a Christian McCaffrey and a Leonard Fournette, if you watch college football. They take out coverage, say they're going to be a first round draft pick or a top ten draft pick and then if they get injured in their bowl game, for example, and then they don't get drafted in the top ten or the first round or whatever it might be, and it's proven that the reason they didn't get drafted when they were supposed to was because of the injury then they can start to collect assuming they drop out of the first round and so on and so forth. So, that's a whole new area and I would just be curious to get your take on that and this going to be a growing trend do you think or is this going to be a flash in the pan, or any other comments you might have on the whole loss of value because I don't know any other realm that that's an option?
HEMBREE: Well, we don't know. I have started to see this as a trending thing but at the same time it's really not far flung from what we've been talking about with the body part, but rather than concentrating on the body part, we're looking at the package as a whole. For years and years we've seen that if we have two articles, that if one is damaged or destroyed then that the whole entity itself is not worth the same value separately as they were together. We're taking the same type of concept now and applying it to a career that if someone attains the value that is valuable to a particular sport or a particular industry and then they're injured, not of their own making, that now their value has been diminished to that same industry because they can't perform at the same level. Now this is getting closer to disability then we were even talking about with body parts and so forth due to accident, but again, it's all actuary. We can look and see what are the chances that something's going to happen, and if so, what degree might it happen to? And, to that degree that it happens, we can assign a degree of diminished value to that player and/or person. When they do that, actuarially we can figure that out, it gets pretty deep with the outliers and the bell curves that we would use, that an actuary would use and way before my formula intake and we can assign premiums and limits that an insurance company is willing to pay. Again, this is not your normal, standard insurance market. We go to specialized insurance markets that can do that.
FINLEY: Yeah, so those markets, I think I saw Lloyd's of London as a popular one that people mentioned a lot. So, say I'm just your average "Joe the Plumber" off the street and say I use my hands, whether its construction or whatever the case might be? Can I get disability insurance? Obviously, like you said, we're not talking about the high end specialization like these athletes but I need my hands to work, can I go get disability insurance then and if something happens to my hands then I'm going to be protected or is that death and dismemberment? How could this philosophy be applied to somebody like me, Joe the Plumber?
HEMBREE: Well, it's perfect because that's what it grew out of. There were those that said, "I see I can get disability as the common man that I am, so in case I'm disabled and I can't perform my occupation, then I can have some protection against the income I'm going to lose because of that." That's the whole premise of disability insurance and it may be a loss of hand or it may just be a sickness or disease that doesn't allow me to perform my job as I normally do it so now I'm not as valuable to the company or the corporation and so it either reduces my value, like we talked about with the professional athletes, or it renders me unable to do it. There's even different stages of disability too, we can have disability for any job and the premium is based on my current income and if I couldn't perform that job that I was earning that income at, but I could do another job, it would pay the difference between those two. And then there are other programs that are disability that are called own occupation, so they're going to be a little bit more costlier but they're going to say, "maybe I can do another job, but I'm being insured because I can't do the occupation I had when I became disabled." And it will pay that full amount even if I could do another job. So, yes, Joe the Plumber, he doesn't have to insure his hands, it would just be that he is unable to perform his job for whatever reason due to disability and they'll define what disability is and to what percentage and for how long. All those go into developing a disability premium and yes it's available for even common guys like you and me.
FINLEY: So, we don't need to go to Lloyd's of London for that I imagine CLH -
HEMBREE: No, we do quite a bit of it. We write quite a bit of disability and there are a lot of good markets out there that can write that. You want a good, A-rated company. That means they're financially suited to do that and we write group disability as well so that if in protecting our employees, if they become disabled, we can provide them with a benefit to replace that lost income due to their disability.
FINLEY: Alright, good stuff, Chuck, as usual. Personally, I'm fascinated by this loss of value stuff when it comes to the players getting drafted and stuff. I think this is just opening a whole new can of worms with the NCAA, but we can talk about that another time. But, unless you have any final thoughts about the body part insurance, disability, etc. I think we might be able to wrap it up.
HEMBREE: Well, I'll leave you with an example and with a closing comment. We insured a college professor for their disability but not for their loss of memory because they were going to be involved in a high exposure sport. He was also a black belt in Karate and they wanted to do a video showing his talents in Karate and mixed martial arts, and they were afraid that during the filming, if he became injured that his value as the professor that he is would be in danger and they would owe that to him, so we were able to write a policy. But this whole realm you brought up is really neat because we can cover the disability portion for just people like you and me all the way up to the big celebrities. We have differing markets and different ways to look at it, different instruments to do it with, but it can all be done pretty well with insurance products. We just need to know where to go and learn the types of things that make it affordable and usable.
FINLEY: It really is a fascinating topic and I would love to continue discussing it because, like I said, I could just dig into this more and more but I think we'll spare our listeners for now and we'll wrap it up with that. Thank you again, Chuck for your insight and thanks to those who listened and if you have any questions at all, feel free to give us a call and we'll be looking forward to it. Until the next time, thanks for listening.
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Show Notes - Where you can learn more about the people and ideas discussed in this episode.
Lloyd's of London
Loss of Value
Death and Dismemberment