Protecting yourself and your future

6 key insurance considerations for athletes and entertainers

 

You’ve done the hard work – devoting time and effort to achieving success as an athlete or entertainment professional. With that success also comes financial rewards, whether through a new contract or sales of your work. This wealth can be life-altering. Understanding how you can help protect your wealth – and yourself – is equally impactful. These six strategies may provide the insurance you need now and in the future.

1 Protect your income

The income you receive from your job/career is essential for many reasons – primarily paying for life’s daily expenses like food and shelter. If something unexpected were to happen to you, it is important to protect this income to help maintain your family’s lifestyle and financial future. Obtaining an insurance policy (either term life or permanent life) can help provide your family with a steady income so they can continue to live the life they are accustomed to if you were no longer there.

Term life vs. permanent life: what’s the difference?

  • Term life offers death benefit coverage for a predetermined time period (usually between 5 and 30 years); permanent life provides death benefit coverage for your entire life – as long as you continue paying premiums, the policy remains in force.
  • Term life is specifically designed to provide income replacement protection at an affordable price, but the policy expires at the end of the term with no residual value or return of premiums.
  • Permanent life usually costs considerably more than term life, but provides a guaranteed death benefit that can be used to fund estate taxes, liquidity needs or legacy goals at death.
  • Some permanent life policies also allow you to access the policy’s cash value through withdrawals/loans.

 

While there aren’t any hard and fast rules for deciding how much replacement income will be enough, start by considering the following questions should something detrimental ever happen to you:

TIP:
Life insurance proceeds are generally tax-free. If you’re looking to protect $10 million in income, you should only need a $5 to $6 million policy to generate the same amount since taxes will likely not be withdrawn when the policy pays out.
  • How much will be needed to pay off any mortgages?
  • How much is needed to fund future educational costs for your children?
  • What other debts or liabilities would need to be paid off?
  • How much more of an income safety net will your family need to maintain their lifestyle?

The amount of required coverage will vary greatly depending on your individual assets, liabilities and personal needs. In general, however, the younger and healthier you are when you purchase a life insurance policy, the easier and more affordable it will be.

2 Insure against the unexpected

No one likes to think about the possibility of getting injured while ‘on the job’ – especially a potential career-ending injury. Yet the likelihood of sustaining an injury that leaves you unable to work for an extended period of time is far greater than the chance of you dying.  Here are some insurance options to consider:

TIP:
Unlike employer-paid disability policies where benefits are usually taxed as income, supplemental disability policy benefits aren’t subject to federal income taxes.
  • You probably have good group disability insurance through your team, league, union or guild, but those policies typically only cover a portion of your compensation and have a cap on monthly benefits. You may want to consider a supplemental individual disability policy to cover any gaps.
  • If you’re a younger athlete, you may also want to explore a permanent total disability (PTD) insurance policy to financially protect you from a career-ending injury. If you haven’t been drafted yet, adding a loss of value (LOV) rider can further cover you against an injury that impacts your draft position and resulting contract value.
  • Considering the high cost of long-term care (on average $75,500/year for a full-time home health aide and $104,000/year for a semi-private room in a nursing home),1 a long-term-care life insurance rider can help prevent a healthcare crisis from draining your assets.

The unexpected can happen at any time so it’s important to insure your future. Consider working with a Merrill advisor to create a plan to fund post-career health care costs – including the potential need for long-term care.

3 Start thinking about your legacy now

It can be difficult thinking about what your life could be like 20 or 30 years in the future. At what stage will your career be then? Will you have a spouse, children or even grandchildren in that time? The success you have now allows you to think that far ahead and plan for different possibilities. Your current self can help set up your future self for even greater success.

TIP: Even if you have a term life policy through your team, league or union/guild (for income replacement to protect your family), you may want to augment that coverage with a permanent life policy (with an optional long-term-care rider) to gain additional estate planning benefits.

As you think about the future and the impact you want to have on others, consider how life insurance can play a critical role in your planning. Life insurance goes beyond making sure your loved ones or the causes you care about have money after your passing,  

When held within certain types of trusts, life insurance may also help protect your assets from creditors and provide your family with much needed liquidity after you pass away. This can be especially important for anyone wishing to preserve their wealth over many years before passing it on to their heirs free from excessive estate taxes.

4 Create an additional retirement income stream

It’s never too early to think about your retirement years. Whether you generate most of your income during a short career span or your success lasts for decades, different insurance policies can help produce additional income during your retirement through loans and withdrawals.* One such strategy that highly compensated professionals often turn to is overfunding a life insurance policy, where:

  • Your annual premiums are used to purchase variable life insurance (a type of permanent life policy that combines an insurance and investment component: with both a death benefit and a cash value that fluctuates based on investment performance).
  • All the cash value that accumulates in the life insurance policy grows tax-free, and there are no restrictions on the age at which you can begin accessing the funds.
  • Overfunding can be used to save additional money for retirement after maxing out other retirement plans like an IRA and 401(k).
  • When you’re younger, you can get more out of the money you're putting into the policy.

Note that it takes time to build up considerable cash value and these policies typically have sizable surrender charges2 – meaning overfunding a life insurance policy may not be advisable if you expect you’ll need access to the cash within the next 15 years. Additionally, contract values can quickly change (potentially making it difficult to continue paying a large annual premium), so it’s a strategy that should be deployed carefully.

5 Carefully consider how much life insurance you need

When it comes to insurance policies, there’s no such thing as a one-size-fits-all solution. Some athletes and entertainers want a policy that will replace both current and future projected income. Others will be happy with enough coverage to fund their children’s educations and support a comfortable lifestyle for their spouse. But since coverage and cost can be excessive, covering the essential expenses is often a financially smarter move.

Keep in mind that even if you make a terrific income now and your career is expected to endure many more years, you should still consider whether you’ll be able to afford the life insurance premiums on a longer-term policy due to year-to-year income fluctuations or a shorter career span than anticipated.

More than

30 million

Americans don’t have enough life insurance coverage.

And the shortfall is greatest among high-income earners.3

6 Periodically review your insurance policies4

As your career progresses, life events happen, and both income and wealth grow, so it's a good idea to periodically review your policies to ensure that they will still meet your current and projected future needs. Additionally, since interest rates, terms and policy features tend to change over time, occasional policy reviews may provide an opportunity to:

  • Reduce or eliminate your annual premiums
  • Take advantage of better pricing, terms and new policy features
  • Better align the policy’s payment structure with your expected income and career duration
  • Explore adding a long-term-care rider to protect against high future care costs

Insurance can play a critical role in your overall wealth plan. You have worked hard to be successful and live a lifestyle you are comfortable with. Protecting your income and assets will help you manage life’s unexpected twists if they were to happen. Contact a Merrill Sports & Entertainment Advisor to explore thoughtful ways to help protect your income, assets and future financial wellbeing.

How we can help

Connect with a Sports & Entertainment Advisor

* Loans and withdrawals will reduce the policy’s cash value and death benefit, may cause the policy to lapse, and may have tax implications.

1 “Genworth 2023 Cost of Care Survey.

2 A surrender charge is a fee that a life insurance company charges when a policyholder cancels their policy before the end of a specified period (usually within the first 10 to 15 years).

3 Closing the coverage gap,” LIMRA, February 2021.

4 When conducting an insurance policy review and presenting options that include replacing an existing insurance contract, it is important to discuss the risks and benefits of replacing one policy with another. Clients should carefully consider the risks and benefits before taking action, including their current need for coverage, their current health status and insurability, fees and charges (including surrender charges, new contestable and suicide periods, and differences in the policies’ terms, conditions, benefits, and exclusions) associated with terminating and replacing an existing contract, and future liquidity needs.

Merrill, its affiliates, and financial advisors do not provide legal, tax, or accounting advice. You should consult your legal and/or tax advisors before making any financial decisions.

All guarantees and benefits of the insurance policy are backed by the claims-paying ability of the issuing insurance company. They are not backed by Merrill or its affiliates, nor does Merrill or its affiliates make any representations or guarantees regarding the claims-paying ability of the issuing insurance company.

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