By Joe Dyton, WCI Contributor
Umbrella insurance is personal liability insurance that extends coverage for your other insurance policies, such as auto and homeowners. It helps pay for claims that exceed what your other policies can cover, protecting your personal financial assets. Here's how much umbrella insurance doctors need to protect against financial catastrophe.
How Much Umbrella Insurance Is Necessary?
Your umbrella insurance policy should at least cover the value of the assets you want to protect. The more valuable your assets, the higher your umbrella policy probably should be. When determining how much coverage you might need, consider how much risk you face on a daily basis. Do you have a long commute to work, increasing the chances of a car accident? Do you rent or own your home?
Do you partake in any dangerous activities? If you drive adventurous vehicles like an ATV or a boat on the weekends, own a pool, or have teenage drivers on your policy, you might want to consider increasing your umbrella insurance to make sure you’re shielded from all of that risk.
We’ll go into more detail about how umbrella insurance impacts doctors in a moment, but as a physician, you should also think about the potential loss of future income. Whether it’s true or not, people will assume you have a high net worth once they find out you’re a doctor. If you were to hit them with your car or they got hurt on your property, they probably won’t wait long to find an attorney. Your future earnings could be considered an asset or wealth source, which can be vulnerable to liability lawsuits.
How Much Umbrella Insurance Do Doctors Need?
The danger a lot of people, including high-earning professionals, fall into is carrying liability limits that are too low. For example, they carry their respective state’s minimum liability insurance, which likely wouldn’t be enough to cover the replacement cost of a high-priced vehicle after an at-fault accident. The same is true for covering medical treatment or disability for the claimants.
Instead, you should raise those limits in the hundreds of thousands and then add an umbrella policy on top of them. A total liability limit of $1 million-$5 million should provide enough coverage. The good news is an umbrella insurance policy typically costs less than 5% as much as a comparable malpractice policy. For example, a $1 million malpractice policy might cost about $16,000 a year, while a $2 million umbrella policy costs about $300 annually.
When you’re a resident, your program will take care of your malpractice insurance, but you may still have high liability from events happening outside of work. You may not want to spend the $200-$700 a year for the $1 million-$5 million umbrella policies that attending physicians should have. But at a minimum, you should increase your liability limits on your car and renters or homeowners policies to between $300,000-$500,000.
What Does Umbrella Insurance Cover?
Umbrella insurance typically covers injuries, property damage, certain lawsuits, and personal liability situations. For example, if your dog bit someone and they sued you to pay for their medical bills or lost wages, an umbrella policy would cover the costs in the event your homeowners policy could not. The same is true if you were at fault in a multi-vehicle car accident, and your auto insurance policy is not high enough to pay for all of the damage. Your umbrella policy would make up the difference.
Additionally, umbrella insurance covers lawsuits and liability claims that your other policies might not, including:
- Libel
- Slander
- False arrest or imprisonment
- Malicious prosecution
Be mindful of things that umbrella insurance does not cover, too. These include:
- Your own injuries or property damage
- Intentional or criminal action meant to hurt someone else
- Any liability that you take on under a contract
- Liability incurred in business or professional activities (you’d need business liability or malpractice insurance in this instance)
How Much Does Umbrella Coverage Cost?
As with any insurance product, an umbrella policy’s cost will depend on several factors, including where you live, the amount and type of vehicles you own, and what other property you have (additional houses, boats, etc.). Any item that could impact the umbrella policy premium will help determine how much your coverage will cost.
Typically, umbrella insurance begins where the liability from your homeowners and car insurance policies ends. Coverage is usually sold in $1 million increments and costs approximately $150-$350 per year for the first $1 million of coverage. Premiums increase about $100 per million dollars worth of coverage over that.
When Should Physicians Buy Umbrella Insurance?
You should purchase umbrella insurance sooner rather than later. Policies are typically less expensive than other types of insurance. While it might be tempting to hold off on purchasing umbrella insurance until your residency ends and your income increases, your future wages could be garnished even when you are a med student. So, don’t delay in buying a policy. Meanwhile, the more umbrella coverage you buy, the less expensive the insurance becomes. You could also be eligible for discounts if your vehicle(s), home, and umbrella insurance are all with the same company.
Is Umbrella Insurance Worth It for Physicians?
As your income and net worth grow, umbrella insurance becomes more critical—you need to protect yourself against those low-probability events that could have devastating consequences. You probably won’t hit someone with your car or create millions of dollars of damage, but if you did and were without additional coverage, the financial penalty could be catastrophic. Instead, gain peace of mind and buy umbrella insurance to protect your financial well-being and lifestyle.
How to Buy an Umbrella Insurance Policy
As with most insurance policies, it pays to shop around and compare quotes from different insurance providers. The best place to start is with the company that currently provides your home or auto insurance. Many umbrella policies require you to also insure your home and auto with them before they will issue an umbrella policy. Our curated list of insurance agents that cater to physicians can be another resource.
Spend your insurance money where it will make the biggest difference. Self-insure wherever possible, and then insure well against financial catastrophes, including non-malpractice lawsuits. Getting an umbrella insurance policy allows you to do just that.
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