By Dan Miller, WCI Contributor
Liability insurance is a special kind of insurance that protects you and your business from lawsuits or claims of damages. Liability insurance is a very broad term that covers a wide range of different kinds of insurance products. Each of the different types of liability insurance covers you from different types of scenarios. Understanding what is and what is not covered is important to know which types of insurance makes the most sense for you, especially if you're a high earner.
Types of Liability Insurance
There are several types of liability insurance. Each of these types of liability insurance protects you from different types of liability. As such, the coverages they offer are slightly different. Here are a few of the most common types of liability insurance:
- Personal Liability Insurance: Personal liability insurance can protect your finances by protecting you from injury and property damage suffered by others. Personal liability insurance is often included in many auto insurance policies.
- Professional Liability Insurance: This is also known as errors and omissions insurance, and it can cover you for things like mistakes or negligence.
- Medical Malpractice Insurance: Medical malpractice insurance is one type of professional liability insurance that is probably familiar to those in the medical industry. Malpractice insurance will help cover you if you could possibly be held liable for a patient's injury or death.
- Cyber Liability Insurance: Cyber liability insurance can protect you against data breaches or other malicious software intrusions.
- General Liability Insurance: This type of liability insurance can cover you if you or your business cause an injury or damage to another person or their property.
- Umbrella Insurance: Umbrella insurance is a special kind of liability insurance that covers you only after all other insurance coverage is exhausted. Most umbrella insurance providers will require you to have a minimum amount of other kinds of liability insurance coverage.
How Liability Insurance Works
In one sense, all of the different types of liability insurance work in the same way. If you suffer liability for a covered loss, your insurance will cover you, subject to any deductible and coverage amounts. Most policies will cover your payouts and/or settlements, but they'll also cover the cost of your defense.
As with most types of insurance, the exact policy details are important, so make sure you understand what is and what is not covered in your policy BEFORE you need to make a claim.
What Does Liability Insurance Cover?
There are many different types of liability insurance, and the details of what is and what is not covered will depend on your specific policy. Here are a few things that the different types of liability insurance may cover:
- Property damage
- Copyright infringement
- Negligence
- Injuries to another person
- Medical malpractice
- Reputational harm
- Missed deadlines or undelivered services
Make sure to read your policy and consult with your insurance agent or broker to make sure you understand what is covered before you need to make a claim.
What Does Liability Insurance Not Cover?
While liability insurance can cover a wide array of different types of incidents, there are a few things that liability insurance typically will not cover. This includes criminal prosecution or legal liability. If your actions open you up to criminal prosecution, your liability insurance policy will likely not provide any coverage.
Again, it's important to understand what is and what is not covered by your specific policies. Professional liability insurance may not cover liability caused by your personal actions. Similarly, cyberattacks or data breaches may not be covered by general professional liability insurance—only by special cyber liability insurance.
How Much Liability Insurance Do I Need?
Medical malpractice insurance is the most basic type of liability insurance for most medical professionals. How much liability insurance to get will vary drastically depending on your specific medical specialty and where you live. A general practitioner in a rural area with a low cost of living will likely not need as much insurance as a surgeon in New York City or Los Angeles.
A good rule of thumb to determine how much liability insurance you need is to get about the same amount of insurance as other professionals in your area that have the same specialty. This could be anywhere from several hundred thousand dollars to a few million dollars.
It's also important to know the difference between “claims-made” and “occurrence” malpractice policies. A claims-made policy will cover you during the period you held the malpractice insurance if there's a claim made during that period. If a claim is made after you let that policy lapse, even if the incident occurred during that period you held the policy, you are no longer covered. An occurrence policy also covers you during the period you hold the insurance. The difference is that occurrence will cover you if a claim is made after the policy period lapses as long as the incident occurred during the period you held the insurance. Since it covers you for a longer period, occurrence policies are more expensive.
In addition to medical malpractice insurance, many doctors will benefit from other types of liability insurance. A general personal liability insurance policy will likely be significantly cheaper than malpractice insurance and provide additional coverage. An umbrella policy is also usually quite cheap compared to the coverage that it offers, and it's usually a good idea for high-income professionals to get it.
How to Get Liability Insurance
Liability insurance, like all types of insurance, is only available through licensed agents, brokers, or companies. The insurance industry is one of the most heavily regulated industries, so it makes sense to find an insurance agent that you can trust and can rely on throughout your career and life.
The White Coat Investor maintains a list of recommended insurance agents, including those that deal specifically with medical professionals and other high-income individuals. Look through that list to see what would fit your needs. Recommendations from friends and colleagues are another good source for finding a trusted insurance agent.
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