Umbrella Insurance

Umbrella Insurance

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, although I’ve heard withdrawal from an Angry Birds addiction can be ugly.  There are only a handful of financial catastrophes that you need to be insured against:

  1. Death
  2. Disability
  3. Illness or Injury
  4. Destruction of expensive property
  5. Occupation-related liability (malpractice)
  6. Non-occupation-related liability

All of these are easily insured against.  We’ve discussed life insurance to protect against the financial consequences of death.  I have posted a series 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 a major business expense for you.  But have you considered the risks of non-occupation-related liability?  Sometimes it is 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, not enough.  The same probably goes for your auto and boat insurance.

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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 $10K and someone you hit in your car comes into the ED as a trauma alert, we’ll blow through that 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 I do that even a brief hospitalization can cost much more than that.

So the first thing to do is to up 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  $300-500,000 and then add on an “umbrella policy.”  An umbrella policy picks up where your other policies leave off.  For example, if you purchase a $1 Million umbrella policy, they’ll require you 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 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.

How much coverage do you need?  Well, how much stuff do you own?  The richer you are, the more coverage you need.  Joe Average, who works down at 7-11 and has $2000 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 $2000.  He then files 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 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.

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.  My $2 Million policy runs me about $500 a year.  I’ve seen them as cheap as $200-300 with some people.  In general, you’ll get discounts if you get your auto, property, and umbrella insurance policies all from the same insurer.  The exact price depends on how risky you are.  For example, someone with 2 ATVs, a couple of jetskis, a boat, a trampoline, a pool, a rottweiler, and 3 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 on the back of the phone book, how long do you suppose it will take the attorney to find out you’re a doctor?  He’ll likely discover most of your assets within a few days as well.

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.

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Comments

Umbrella Insurance — 9 Comments

  1. 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

  2. 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.

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  5. 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.

  6. 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.

  7. 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:

      http://whitecoatinvestor.com/the-california-private-retirement-plan/

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