Making sense of Kap's disability insurance policy

The biggest story of the week was Colin Kaepernick's freshly-inked six-year extension with the San Francisco 49ers originally reported to be worth $61 million in guaranteed money. We know now that those numbers don't exactly tell the whole story.

There are quite a few moving parts to the contract such as built-in de-escalators that would be activated if certain stipulations aren't met. Those have been spelled out pretty plainly. But one aspect of the contract that hasn't been touched on very much is Kaepernick's required purchase of a disability insurance policy.  And it's also of particular interest to me because...surprise! I'm a licensed life and health insurance producer. No, seriously, I am.

This policy would pay out $20 million to the 49ers in the event that Kap suffered a career-ending injury at any point beyond the 2014 season through the term of his contract. The reported $61 million in guaranteed money includes $13 million in fully guaranteed compensation, and another $48 million in injury guarantees. The $13 million would cover his signing bonus, his 2014 base salary, and his 2014 workout bonus. The $48 million in injury guarantees would cover his 2015 salary ($12.4M), 2016 salary ($13.9M), his 2017 salary ($16.5M) and $5.2 million of his 2018 salary. That means, if he were injured in the offseason workout program following the 2016 season, he would still have $20.7 million in base salary due him.

When news of the extension first broke, I think we were all floored by the initial numbers. As details began to trickle in, however, we all started to wonder if Kaepernick is the one who got fleeced. Niners Nation's very own SoCaliSteph was none too pleased:

@TheJasonNeal @AnthonyLy49 he suffers a career ending injury and the policy (he pays for) pays the 49ers? Come on.

— So Cali Steph (@SoCaliSteph) June 5, 2014

As Steph points out, one of the stipulations going against Kaepernick is that he is going to have to pay for his own insurance policy which is another reason why this contract is so unconventional. As far as I know, there is no precedent for this.

Dallas Cowboys' quarterback Tony Romo took out a $30 million "loss of value" insurance policy back in 2007 that would pay him that amount in the event that he were to injure himself and, thus, devaluing his worth on the open market. Romo is one of several players that have purchased some form of disability insurance, but unlike Kap's situation, those insurance policies 1.) have been completely independent from the terms of the contract, as far as I know, and 2.) protect the player, not the team.

One more aspect I wanted to explore was approximately how much Kap would be paying for this policy. Traditional insurance companies will not offer disability coverage for athletes considering, obviously, their high exposure to injury due to the physical nature of their occupation. That means Kap won't be walking into State Farm for this kind of thing. Instead, he would most likely contact a specialist insurance group such as Lloyd's of London - famous for insuring certain celebrity assets like Dolly Parton's breasts and David Beckham's legs.

Petersen International Underwriters, affiliated with Lloyd's of London, is one such specialist insurance group.

"It is unlikely that [Kaepernick] would be able to buy insurance to protect 2015 through 2020, but if he were able to, the premiums would start at around $325,000 the first year and escalate to somewhere around $600,000 to cover the 2020 season," explained Scott Petersen, account executive at PIU.

Petersen clarified that this type of insurance, at least through PIU, is traditionally purchased and renewed on a year-to-year basis as opposed to a multiple-year term contract.

Let's assume this is true of Kap's policy. Using those projected estimated figures, with the annual premium increasing every year, Kap would be paying a total of approximately $2,775,000 for his insurance policy through the life of his extension. Again, these are very approximate figures based on projections, so until specific details about his policy are made available to the public, which is unlikely, this is all we have to chew on.

Kaepernick's extension is incredibly team-friendly, and this is one variable of the contract that makes it so. We can argue the merits of its fairness all day long, but it's clear that Kap believes enough in his ability to make such a bet on himself. Let's hope he proves himself right.