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:
- 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.]