As a professional athlete, it is very likely that your family depends on your income—so it’s vitally important that you plan accordingly for the future. The experts at Geier Asset Management can help you handle everything, including:
Whether you are a 10 year veteran or just starting out in the big leagues, “risk management” is a term you should become familiar with. Risk management is the practice of appraising and controlling risk. Oftentimes we associate the term “insurance” with risk management. It comes in many forms, including: life insurance, homeowners insurance, auto insurance, liability insurance, personal articles insurance, and health insurance.
If you have a spouse and children that rely on your earned income, life insurance is something you don’t want to overlook. There are no guarantees in life, and everyone is aware tomorrow is not promised. Should the unfortunate and unexpected occur with an early demise, you want your family to be protected and provided for even in your absence.
Life insurance is a contract between the policy owner and the insurer, where the insurer agrees to pay a designated beneficiary a specified amount of money upon the occurrence of the insured’s death or other event, such as terminal illness or critical illness.
There are different options available as far as life insurance products, but they can be grouped into two basic categories; permanent and temporary. Term insurance is temporary insurance, but very popular as it is one of the more affordable policies available. Whole life, universal life, and endowment policies fall under the permanent category. You should consult a professional financial advisor to determine what level of coverage is needed, as well as which product best suits your situation.
Homeowner’s insurance, also referred to as property or hazard insurance, is an insurance policy combining various personal insurance protections, which can include losses pertaining to a home, its contents, loss of its use, or loss of specific personal possessions within the home, as well as liability insurance for accidents that could happen on the homeowner’s property. Typically the main dwelling coverage is the value of the dwelling itself minus the land. All the other coverage such as personal property or other structures is typically a percentage of the main dwelling coverage.
It is important to keep your insurance agent abreast of major home improvements as coverage may need to be increased. Your agent should be notified should you move out of a residence, and it is now vacant as well since coverage can be adjusted down. An important point to mention is the higher the deductible, the lower your premium will be. Consult your agent for more information.
Auto insurance is insurance purchased for vehicles, even including 4-wheelers and tractors. It provides protection against physical damage and/or bodily injury arising out of traffic accidents and liability that could occur associated with the accident.
Oftentimes professional athletes are on the move and may have vehicles stationed in their home state for long stretches of time that are not currently being driven. One option in this situation is to contact the insurance agent and request only the comprehensive coverage is maintained during this period of time. This coverage protects against damage done to the vehicle by an unknown party or act of God including vandalism, flood, hurricane, theft, and fire. Once the athlete returns home, they can adjust the coverage back to normal limits.
There are also substantial savings available by setting the deductibles at $1,000 or higher. Of course each person will need to weigh out their risk and comfort level before deciding upon a deductible.
Most professional athletes and/or their spouses have personal possessions such as jewelry, furs, collectibles, art, or memorabilia they want to protect against loss. This is where a personal article policy comes into play. They are policies established to protect against lost or stolen goods that are currently listed on the policy. These are popular policies as you get a lot of coverage for a very reasonable price.
Liability policies otherwise known as “umbrella policies,” are a vital component of the professional athlete’s risk management plan. These policies protect assets and future income of the policyholder above and beyond the standard limits on the primary policies such as the homeowner’s and auto policy. It goes into effect when all underlying primary policies have been exhausted. It can provide coverage for claims not included within the primary policies such as slander, false arrest, invasion of privacy, etc. These policies typically start in increments of $1,000,000 and are also priced reasonably for the amount of coverage afforded.
Health insurance is the protection against the risk of incurring medical expenses. The Major League Baseball Players Association, for example, provides different types of health insurance plans to their players: A, B, C, and D, with plan A being the most comprehensive and automatic coverage for active and disabled members and their dependents, but elective for inactive members, retired members, widows, and their dependents. For a more in depth analysis of the various policies available, visit http://benefitshandbook.mlb.com and use password: handbook2006.
If you have children, it is never too early to start saving for their college education. There are many ways to save, but among the most popular vehicles to achieve this goal is that of the 529 plan. A 529 plan is a tax-advantaged savings plan designed to encourage saving for future college costs. They are sponsored by states, state agencies, or educational institutions. The two types of plans are pre-paid tuition plans and college savings plans.
Prepaid tuition plans are college savings plans that are guaranteed to increase in value at the same rate as college tuition. They allow a student’s parents to lock in tuition at current rates. Most offer a better rate of return on an investment than bank savings accounts and certificates of deposit. The plans also involve no risk to principal and often are guaranteed by faith and credit of the state. If the student attends an in-state public college, the plan pays the tuition and required fees. If attending a private or out-of-state college, the plans typically pay the average of in-state public college tuition, and the family will have to pay the rest.
Section 529 college savings plans are tax-exempt college savings vehicles with a low impact on financial aid eligibility. There is no lock on tuition rates and no guarantee. Investments are subject to market conditions, and the savings may not be sufficient to cover all costs for your child’s college education. The additional risk does give you the potential for greater return though.
Most 529 college savings plans offer an adaptive asset allocation strategy based on the age of the child or number of years until entering college. These plans begin aggressively when the child is younger, and as college approaches, switch to more conservative investments. Anyone can contribute money on behalf of a beneficiary including relatives, friends, or even colleagues. The favorable gift tax treatment of 529 plans makes them a good estate planning tool.
Whichever vehicle is chosen, the most important thing is that you begin saving for your child’s future.
Many professional athletes have a desire to “give back” or be a part of something much “bigger” than themselves. They want to build something that will remain in place even after they are gone, that the family can continue on their behalf. Many professional athletes create private foundations. There are many rules and regulations surrounding private foundations. The athlete should ensure the foundation is set up and qualified by the Internal Revenue Service. They also have to file a special application to become what is called a “501C3.” The proper infrastructure has to be in place in order for a private foundation to be successful. They are not public charities, but are considered tax-exempt organizations.
Before starting a foundation, they must apply for tax-exempt status and submit paperwork explaining the infrastructure of the planned foundation, including costs to operate. Although athletes cannot pay themselves for any work they do for their foundations, per the tax code called the private inurement rule, they are still able to take advantage of tax benefits derived from donations. According to an article written by Todd Karpovich entitled, “Professional Athletes and Their Nonprofit Foundations,” athletes can deduct up to 30 percent of the adjusted gross income for cash donations made to private foundations. Players can deduct in full up to 20 percent of the adjusted gross income for any stocks, bonds or mutual funds that are donated.
Although there are significant tax benefits associated with setting up a private foundation, most professional athletes do this out of their own desire to give back to the community and personal love for humanity in general.