By Dr. James M. Dahle, WCI Founder
By Dan Miller, WCI Contributor
In general, you should self-insure whenever possible and then insure really well against the financial catastrophes out there. Your refrigerator dying or your iPhone being lost are not financial catastrophes. Before we discuss umbrella insurance for physicians, you should know there are only a handful of financial catastrophes that you need to be insured against:
- Death
- Disability
- Illness or injury
- Destruction of expensive property
- Occupation-related liability (malpractice)
- Non-occupation-related liability
All of these are easily insured against. We've discussed life insurance to protect against the financial consequences of death. The White Coat Invest has posted plenty of articles on disability insurance. You, more than most people, know the importance of health insurance to help out with the sometimes incredibly high costs of medical care. You likely carry plenty of insurance to replace your house, expensive cars, and their contents. Malpractice insurance is probably a major business expense for you.
But have you considered the risks of non-occupation-related liability? Sometimes it's useful to develop a comprehensive asset protection plan, but the first and most important step of such a plan is having adequate liability insurance. Pull out your homeowner's or renter's policy and turn to the liability section. How much coverage do you have? If you're like many doctors, the answer is: not enough. The same probably goes for your auto and boat insurance.
Most people only buy the required amount of auto liability insurance. In Florida, that's only $10,000 per person for medical bills. If all you carry is $10,000 and someone you hit in your car comes into the ED as a trauma alert, we'll blow through that amount within minutes of the time they roll in the door. You can see your state's minimum auto insurance requirements here. Even if the accident isn't your fault, you may be on the hook for your passenger's injuries in several “no-fault” states such as New York, Pennsylvania, or Utah. Homeowner's insurance generally has limits of $100,000. You know as well as we do that even a brief hospitalization can cost much more than that.
So, the first thing to do is to increase your liability limits on each of your policies—home, boat, auto, etc. It is stupid to have a $250 deductible on your collision coverage for your car and then skimp out on the portion of your policy that really protects you from financial catastrophe—the liability portion.
The strategy most people with liability concerns take is to increase liability limits of the underlying policies to $300,000-$500,000 and then add on an “umbrella policy.” An umbrella insurance policy picks up where your other policies leave off. For example, if you purchase a $1 million umbrella policy, you'll be required to increase your auto and property insurance liability limits to $300,000. Then, if there is an $800,000 claim against your homeowner's insurance (think a child who drowned in your pool), your homeowner's insurance policy picks up the first $300,000 and the umbrella policy would pick up the next $500,000.
What Is Umbrella Insurance and How Does It Work?
Umbrella insurance is a type of insurance that goes above the limits and coverages of any of your other insurance policies. If you have a claim against your car insurance or your homeowner's insurance, that policy will only cover you up to a certain amount. If you don't have an umbrella insurance policy, then you will have to pay for any extra amount that you owe. This can be quite costly, especially if you have a high net worth and lots of assets. An umbrella policy can help protect your assets in these situations.
What Does Umbrella Insurance Cover?
Here are a few things that umbrella insurance will usually cover:
- Bodily Injury Liability: The cost of damages to another person
- Property Damage Liability: Damages to another person's property, such as a car or home
- Landlord Liabilities: If you own rental property, umbrella insurance can help cover items that come up at your rental properties
- Libel, Slander, Defamation, etc.
Does Umbrella Insurance Cover Medical Malpractice?
As physicians, one job-specific question that many wonder about is whether umbrella insurance covers medical malpractice. While it's important to read and understand the details of your specific policy, a personal umbrella policy generally does not cover occupational liability. That is why you buy malpractice insurance.
How Much Umbrella Insurance Coverage Do You Need?
Well, how much stuff do you own? The richer you are, the more umbrella insurance coverage you need. Joe Average, who works down at the 7-11 and has $2,000 in assets to his name, probably doesn't need all that much coverage. If he runs over the CEO of the local bank, he's out $2,000. He then files for bankruptcy. You, hopefully, have quite a bit more assets. Your liability coverage should at least equal the amount of assets you own. You want to have enough insurance that it is pretty unlikely that the limits would be exceeded in a lawsuit.
This also provides you the benefit of attorneys to help defend you. Since the insurance company doesn't want to pay the claim, you get the benefit of their specialized attorneys working for you for free. The truth is you need your liability coverage to be more than any possible judgment against you, and that doesn't necessarily have anything to do with your level of assets. Even if you have nothing, a judgment could garnish something like 15% of your wages.
Average Physician Umbrella Insurance
Most wise physicians have an umbrella policy of $1 million, $2 million, or even $5 million. The more you get, the cheaper each unit of insurance becomes. I (Jim) had a $2 million policy for a long time that ran me about $500 a year. I upped it to a $5 million policy a few years ago, and that obviously costs more. Given my teenage driver and boat, mine is now more than $1,600 a year before discounts. It ends up being a little more than my homeowner's insurance and about half my auto insurance. But I've seen umbrella policies as cheap as $200-$300 per year for a $1 million policy. In general, you'll get discounts if you get your auto, property, and umbrella insurance policies all from the same insurer.
What Does an Umbrella Insurance Policy Cost?
The cost of an umbrella insurance policy will depend on how much you get and what other types of insurance you have. Usually, insurance companies will require that you have certain limits on your auto and homeowner's policies, and you'll often get a discount on your umbrella policy if you have all of your insurance with the same company. An umbrella insurance policy will usually cost between $250-$500 per year for $2 million-$3 million dollars of coverage.
The exact price depends on how risky you are. For example, someone with two ATVs, a couple of jet skis, a boat, a trampoline, a pool, a rottweiler, and three teenage drivers is going to be pretty risky, liability-wise. Remember, whether you are or aren't, those who find out you're a doctor will assume you're rich. If someone gets hurt on your property or you hit them with your car and they go to the attorney in the back of the phone book, how long do you suppose it will take the attorney to find out you're a doctor? Probably within a few days.
Is An Umbrella Policy Worth It for Physicians?
Absolutely. As your income and net worth increase, it becomes more and more important to protect yourself against low-probability events with catastrophic consequences. While it may be unlikely that you'll hit someone with your car and do millions of dollars in damages, if you do, it will obviously have a huge negative impact on your life. Umbrella insurance is an important part of protecting your lifestyle.
When Should Doctors Buy Umbrella Insurance?
Umbrella insurance policies are relatively cheap, compared to other types of insurance, and you'll want to get one sooner rather than later. One school of thought is that you can wait to buy umbrella insurance when you are approaching the end of residency and are looking at a big jump in income. But remember that your future wages can be garnished even while you are still in medical school. So, it may make sense to buy umbrella insurance as soon as possible.
Should You Keep Your Umbrella Insurance Policy in Retirement?
The answer to this question will depend on your specific situation. If you have a high net worth and a significant amount of assets, then it makes sense to keep an umbrella insurance policy. You've saved your entire life to enjoy a comfortable retirement—the last thing that you want is to lose the majority of the assets you plan to enjoy in retirement.
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.
Bottom line: 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 would allow you to do that.
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Do you have umbrella insurance? At what point in your career did you buy it? Have you ever had to use it? Comment below!
[This updated post was originally published in 2011.]
question about umbrella. doing some shopping around. I have USAA for homeowners, Auto, valuable property, and umbrella (1 million). I have been given a proposal with a company for slightly cheaper monthly amount (about $35/month in savings), BUT they have decreased liability limits on the auto compared to what i have now, but have increased umbrella to 3 million.
Is there a strategy (lower limits with higher umbrella or higher limits and lower umbrella?)
just wondering what is more cost effective or strategic long term.
USAA won’t let me increase above 1 million because i have a german shepherd (who is a cuddle bear, but they don’t see it that way :))
i am very happy with USAA customer service and to me, it is worth paying $35/month extra for them, all things else being equal. but perhaps if I can find an alternate company that is “dog friendly” with a higher umbrella, i may drop only USAA’s umbrella.
any ideas?
p.s. really enjoy your site and have shared with a few friends.
fellow ED doc,
Jon
forgot to click the comment notification button, sorry for double post
Jon-
Good question. Doesn’t sound like USAA likes your dog. If I were you I might just look around for another umbrella policy. That way you benefit from USAA service on most of your policies, but get a cheaper umbrella. Some companies do offer them without requiring you to have your auto/property insurance with them, but they usually give a discount if you have all your policies with their company.
I don’t think the liability limit on the auto or property insurance is so important as long as it’s backed up by a big umbrella policy. 300K…$100K….doesn’t really matter. It’s all about the total coverage (i.e. the size of the umbrella.) If you want more liability coverage, looks like you need to look outside of USAA.
What if you’re 1 year away from having a real job, 1/4 million dollars in debt, and really the only thing you own is an old pickup and a goldfish? Should I insure against future assets? I’ve heard that lawyers can garnish future wages.
There is definitely an argument that you don’t need to protect assets you don’t have, but I ended up getting my umbrella sometime around the time of residency graduation. My umbrella is far larger than my net worth still. I’ve also heard that lawyers can garnish future wages, but I don’t know how easy or common it is to do in a personal lawsuit. I think it is very rare in a malpractice lawsuit.
So I recently bought a house, and followed your advice about upping my liability on auto and home and bought 3M of umbrella with State Farm(about $600/yr). I read through the policy and it does not cover “professional liability”. I was hoping to cover myself from a lottery type lawsuit you hear about (over $3-4 million judgement). I’m an ED physician in California.
A few questions:
1. Is this standard umbrella coverage?
2. Other than malpractice insurance(I have 2M/4M occurence based coverage) is there anything else I can do mitigate this risk? I know the “lottery judgement” is exceedingly unlikely, but want to be as bulletproof as possible.
Thanks and nice website – I’ve been recommending it to colleagues.
– Peter
Yes, umbrella insurance typically does NOT cover professional liabilities. You can buy a malpractice umbrella or a higher limit malpractice policy if you wish, but the malpractice guys I talk to basically say, “If you want to give us more money, we’ll take it.” They basically think $1M/3M is fine for pretty much everyone. You already have $2M/$4M, so you’re already “more bulletproof”.
California’s asset protection laws aren’t so hot. Something like $50K of home equity is protected, $9700 of life insurance cash value, and your IRAs/401(k)s “to the extent reasonably necessary for support.” Yet another reason California is a financial toxic wasteland for physicians. Here’s another option in California:
https://www.whitecoatinvestor.com/the-california-private-retirement-plan/
The health system for which I work offers a group umbrella policy (either $3 or $5 million), but it does NOT provide Excess Uninsured/Underinsured Motorist Insurance. I spoke with an outside insurance agent who said most people do not get the excess. He can offer a $1 million umbrella that includes the Excess Uninsured/Underinsured Motorist. I was planning to get coverage for $2-3 million. Any recommendations about getting a policy that includes the Excess Uninsured/Underinsured Motorist Insurance,but has lower limits? Thank you.
Interesting question. Surprised an umbrella policy wouldn’t cover that. Seems like a pretty standard liability.
If I have malpractice insurance through my practice, do I need an additional umbrella policy to protect my personal assets if I am sued by a patient?
It won’t help in that case. You need it in case you are sued by a neighbor.
Got it, thank you.
New to WCI
Comments on the above.
I was told by my asset protection atty that garnishing wages is typically 2.5% of future earnings.
Protected assets like 401 k and IRA are vulnerable once you start to withdraw.
And most umbrellas require you to insure home and vehicles w/ the same company.
I think that’s all more or less correct.
Similar question to what was asked above. I’m one year out from training and in the process of closing on a home. We are working through purchasing the necessary insurance as well. I have very few assets (one fancy diamond on my wife’s finger and little else). The majority of my income is going towards aggressive student loan payments. Is an umbrella necessary right now?
Yes. An umbrella protects you from liability, not property loss. You have just as much liability now as you will later, no? Umbrella is very cheap anyway. I think I’m paying $200 something a year for $2 Million.
Can someone please recommend a umbrella insurance broker where I can get quotes from multiple companies? I have car insurance with Geico and the offered $527 for my wife (also a physician) and I for a $1 million dollar policy.
Generally start with your car and home insurer. Sometimes a company will require you to have both with them to do an umbrella.
Hi, I’m starting residency and I’m extremely fortunate to be without student loan debt as well as being able to purchase a home. Do you think it is necessary for me to purchase umbrella insurance? (home value ~500k)
Interesting way you phrased that, as if umbrella insurance has anything to do with the value of a home. It doesn’t. Umbrella insurance is a personal liability policy- yes, you need one of those. If you choose not to get one, at least boost up the liability coverage on your home and auto policies to $300-500K or so.
BTW- I think it’s folly for a resident to buy a $500K home unless your spouse is an attending or similar AND you expect to stay in this area for a long time.
How in the world can you afford a 500k home on a resident’s salary??
probably a wealthy spouse or parets
I want to get umbrella insurance but I’m a member of a flying club and a boat club. The umbrella application asks if I own a boat and doesn’t say anything about planes. Would you discuss this with the umbrella company or proceed and obtain the umbrella without a direct discussion? Both clubs have their own insurance with high liability coverage. Im afraid if I had an incident the umbrella wouldn’t cover anything boat or plane related even though I’m not an owner, only a club member. I’m also afraid if I discuss this they won’t sell me the umbrella at all leaving me really unprotected.
I just wanted to point out that umbrella policies — unlike home / auto, can be VERY different from company to company. All of them will extend your homeowner’s and auto policy, but many also include additional coverages:
Worldwide protection on all liability — most cover
Defamation / libel suit — most cover
Watercraft — some don’t cover unless named in the policy, some limit the coverage, and some have no limits.
Aircraft — most don’t cover
Non-Profit board member liability — most don’t cover, some cover for bodily injury, some cover for full D&O
AIG, Pure, Nationwide private market, and Chubb all have excellent policies if you are eligible. Progressive has a surprisingly broad coverage as well.
Wanted to bring up a similar question as Peter did in 2014- is it advisable to purchase an umbrella malpractice policy if you have a claims based 500K/1 million policy? I’m a hospitalist in PA. This is something that came to my mind when considering a “lottery type judgement, ie greater than $3 million judgement”. The other thing to consider is the cost of an umbrella malpractice policy of covering oneself compared to the slim possibility of a exceedingly high monetary verdict….
Yes, that is the thing to consider. I mean, if you could buy another $5M in coverage for $500 a year like personal umbrella coverage, then sure, why not? But I once asked my malpractice company attorneys if I should buy a $2M policy (instead of the standard in my specialty and state – $1M/$3M) and they laughed and said, “Sure, we’ll take your money, but you don’t need it.” It wasn’t quite twice the price, but it was close.
Here’s the deal though: A $2M or even a $5M policy isn’t going to do you any more good than a $500K or $1M policy if you get a crazy $65M judgement that isn’t reduced on appeal. Just realize the likelihood of that happening is exceedingly low and even when it does, it’s not usually millions more, more like $50-200K more. As a general rule, plaintiff’s attorneys aren’t interested in your money/personal assets. This is all about the insurance money. You did the right thing by paying for the policy for years, they do the right thing by limiting what they go after to that.
Thanks so much for the input Jim! Makes sense!
Thanks for a great resource.
If a medical student or resident has significant assets from a previous job or inheritance, would you recommend purchasing an umbrella policy as early as during medical school rotations/residency? Or can it wait until post-residency if the main purpose is to counteract the assumption a lawyer will make about doctors being “rich” and ripe for a large lawsuit?
Thanks
Yes, I think residency is a great time to buy an umbrella policy, but that has nothing to do with your assets. It’s all about your liability. Even if you declare bankruptcy, they can still garnish future earnings.
Does anyone know if it is pretty standard for umbrella insurance to cover only non-business related claims (I.e. the classic example of getting sued after a motor vehicle accident for more than your auto insurance limits)? Are there umbrella policies that will also cover you if you get sued for a business-related/malpractice case that goes over your malpractice insurance limits? I realize that this scenario is very unlikely, but if it’s relatively inexpensive to insure against then it might be worth it. I’ve read about PoF’s experience of getting sued as a former hospital board member and that umbrella insurance would have protected his personal assets in this circumstance, however I’ve also read that this was a very unique situation in that umbrella policies only cover board positions at not-for-profit institutions (also clearly not a malpractice case). Thanks!
Yes. It won’t cover malpractice for sure.
About 80% of umbrella claims are auto-related.
I am currently a fellow and still have 3 more years to go. I rent and there’s nothing valuable in my apartment and I never have guests over. Is renter’s insurance really necessary at this point? I have $500,000 in auto liability, would that be sufficient for now?
No, you still need renter’s. Admittedly you need it a whole lot less than most so I guess you can roll the dice if you want, but I’d buy it.
Is $500,000 car insurance liability and $1-$2 million umbrella insurance really a smart move? I can’t find any statistics online about ACTUAL liability settlements that go beyond policy limits AND into personal assets. It appears that umbrella insurance is so cheap because no one uses it, and even if it is used, the lawyers don’t go after more than the policy limit. I’ve heard attorneys don’t waste their time suing people without large liability coverage because it takes so many (expensive lawyer) hours to go after personal assets and it’s very difficult to actually acquire those assets so it’s just not worth their time. The insurance companies post articles that list 10 (scare tactic) stories of ridiculous suits that umbrella insurance covered for 1-5 million dollars to make us feel like we’re in serious need of protection from these crazy suits.. I really doubt that those same individuals would have been sued for that same settlement amount if that umbrella insurance wasn’t sitting there for the lawyers to take a huge percentage of. The TRILLION (!!!) dollar insurance industry sends us thousands of advertisements and has created a narrative in this country that we REALLY need a ton of liability insurance or we’re just stupid. Most people likely won’t consider this argument seriously because we’re so convinced we’re in danger. Tell me how many people get sued, don’t have umbrella insurance, AND lose everything.. You don’t find that data anywhere because it doesn’t happen, except maybe 1 in a million. (So if you want to give away a ton of money in case we get hit by lightning, then sure, I guess it’s okay) The internet is stocked full of articles from insurance companies and lawyers who say GET COVERAGE.. because they’re the ones benefiting the most from it.. they hide the real statistics because then no one would buy into these huge policies. There are practically NO articles showing any downsides to having a ton of coverage. The average car insurance liability settlement is less than 15k.. It just seems that we’re being a bit scammed by the largest industry in the country.
Correction: One of the top 3 largest industries in the country.
Summary of comment: If you have seen any statistics on personal asset loss from a lawsuit, I would be very interested in seeing it!
Thanks for everything you do, WCI!
Also, don’t forget the policy also pays for your defense, not just the payout.
Now, like with a million dollar malpractice policy, it’s probably very rare for someone to lose money above and beyond policy limits when you have a 7 figure umbrella policy. But I don’t think that’s true at all for a $50K policy when you’re a multi-millionaire.
I’m not sure the lawyer of the person you maimed cares whether their fee comes from your umbrella policy or your Vanguard account. I’d rather pay the bill with the former.
Most people don’t have the assets that I and many of my readers have, so I don’t think advice for most people is appropriate here. For a few hundred bucks a year, I’ll keep that Umbrella policy.
What do you recommend for residents who follow your advice of renting rather than buying their home? Under the financial waterfalls you recommend investing in DI during residency and then later increasing the policy limits. What about renters insurance and umbrella insurance? My SO will start as an attending next year whereas I have a few years left in training. We don’t expect to marry for another 1-2 years. We have a combined ~500k of student debt so our net worth is well into the negative. I’m thinking about taking out renter’s insurance with property coverage of 20k and liability of 300k. Given our potential future earnings, should we also add a $1M umbrella policy now? Thanks!
Sure, why not? You can certainly afford it with one of you being an attending and probably even without that. They’re not expensive, probably $200 a year.
When you say auto liability insurance, do you mean “Bodily Injury Liability,” “Property Damage Liability,” “Uninsured Motorist Bodily Injury,” and/or “Underinsured Motorist”?
Generally the first two, but it could also include the second two.
My wife and I are both physicians (I’m a psychiatrist; she’s an oncologist): do you recommend we both get individual umbrella insurance policies? Or are there umbrella insurance policies that cover both of us, given that we both share the same homeowner and autos insurance policies?
No, you can share one policy.
I’m looking at getting a policy that adds un/underinsured motorist coverage up to 1 million along with a general 2 million policy. The annual cost is $800. I have a quote for a similar 2 million policy without the un/underinsured motorist coverage for $400/yr. Not sure I need the extra coverage when auto has 500k of un/underinsured motorist. Any advice would be helpful.
Thanks,
Chris
I think I’d lean toward the one without the underinsured motorist coverage. My biggest concern when it comes to car insurance is liability of the people not in my vehicle. Uninsured or underinsured motorist coverage is used to cover your passenger’s injuries because your car is covered by your comprehensive/collision.
I have a question about rates for umbrella policies. I am a PM&R physician in New Jersey who owns a primary home and a vacation home (we do not rent out the unit). I have a wife and two adult children living at home. We have four vehicles in the family. We do not own any “risky assets“ (ie no watercraft, no pool, no planes, no pets) and have clean driving records.
Based on other information on this website, I was surprised to get very high quotes for a $5 million umbrella policy and $1 million uninsured/underinsured excess auto coverage (I am already covered up to $500,000 by my auto insurance carrier New Jersey Manufacturers).
The quotes are:
Chubb: $1800 (they already write my primary residence home insurance)
New Jersey Manufacturers: $1400 (they already write my auto insurance)
Other quotes from insurance companies that deal with high equity individuals but who will require “three lines of business“ (I.e. I will need to move my homeowner’s insurance and auto insurance to them) in order to write the umbrella include:
Cincinnati: $876
Berkeley one: $1244
Pure: $1154
Can you please comment on the premiums being requested? These quotes seem to be awfully high compared to what you have written and what I have read in general on the Internet
Do any of the companies you deal with at Whitecoat investors, write umbrella policies? If so, I would like to get a quote from them.
Thank you very much
Most people are talking about $3-500 for a $1 million policy, so no surprise that $5 million is more. My list of insurance folks is here:
https://www.whitecoatinvestor.com/websites-2/insurance/
My own umbrella policy ($5M) is $1,654. I think that’s before discounts are applied for multiple policies though, so it’s in the same ballpark as your quotes.
I definitely have more “risky/toxic” assets though with a boat and more importantly, a teenage driver.
who’s your recommended umbrella company?
Whoever you have your auto and homeowners insurance. In my case, it’s USAA.