Do Physicians Need Umbrella Insurance?

Article Summary:

• Umbrella insurance supplements other policies such as auto or homeowner’s insurance, helping cover any resulting liability that exceeds your coverage limits on these standard policies

  
  

• Most of the physicians we work with start with an umbrella policy of $1 or $2 million, but as their net worth grows, it’s not unusual to see policies of $5 million or more.

  
  

• The good news about umbrella insurance is that it is typically very inexpensive in relation to other coverage, and you can get quite a lot for a modest premium.  

What is umbrella insurance?

Umbrella insurance covers you broadly by picking up where your other policies stop. Sometimes referred to as personal liability insurance or excess liability, umbrella insurance does not stand alone. Rather, it supplements other policies such as auto or homeowner’s insurance, helping cover any resulting liability that exceeds your coverage limits on these standard policies. For example, if you need to use your homeowner’s insurance or your vehicle insurance to cover a loss or claim against your property, and that policy only covers a portion of the expense, your umbrella policy can cover the difference.

Why do physicians need umbrella insurance?

As a physician, you experience risk differently than most professionals.  You’re most likely to already have insurance against several of the most common financial pitfalls with a combination of: 

1. Life insurance to protect against an unexpected death and the chaos it could cause to your family  

   
   

2. Disability insurance to cover your most valuable asset – your ability to earn a high income as a physician

   
   

3. Health insurance to stay well

   
   

4. Property and casualty insurance to protect your home, auto, and other possessions  

   
   

5. Malpractice insurance to cover the risk associated with occupation-related liability

However, unlike your non-physician counterparts, you carry the additional risk of being a target with deep pockets. This can bring an added element of uncertainty, and it makes it difficult to cover all your bases.  Accordingly, umbrella liability insurance should be part of your risk management toolkit.

Aside from providing extended coverage, another advantage of umbrella coverage is that you and the insurance company’s interests are completely aligned. They don’t want to pay a benefit any more than you want to be sued. Because insurance companies don’t want to pay claims, you have essentially hired their team of attorneys to work towards your mutual best interest. Avoiding a large claim is their specialty.

What does umbrella insurance cover? 

The average umbrella policy will usually cover the following:

1. Bodily injury liability and the cost of those damages to the injured party. It will typically cover their medical bills or expenses to treat an injury.  If the incident involves someone’s death, it may pay their funeral costs and your legal defense costs.  

   
   

2. Property damage liability. An umbrella policy can help cover damages to someone else’s property, such as an automobile or home.  

   
   

3. Landlord liabilities. If you own rental property, umbrella insurance can help cover certain losses at these properties.

   
   

4. Defamation, slander, and libel among others. 

Since umbrella insurance is intended as non-occupation-related liability coverage, it won’t include things like:

1. Professional malpractice – you’ll need separate insurance for that

   
   

2. Property damage or injuries in certain circumstances, like an uninsured dog or uninsured recreational vehicle

   
   

3. Injuries or damage that your business may be liable for – there are business umbrella options for this

What do you need to qualify for umbrella insurance? 

Insurance companies will only allow you to purchase umbrella liability coverage if you already carry auto, homeowners, or another form of insurance.  It is supplemental coverage, not primary coverage. You also typically must meet certain coverage limit minimums before you can add umbrella insurance.  

How much coverage should a physician have?

As a rule of thumb, you should have coverage equal to the amount of assets you own. In other words, cover your assets. Another rule of thumb is to have coverage in excess of any possible judgment against you, and as a physician, that may be a larger number than you think.  

Most of the physicians we work with start with a policy of $1 or $2 million, but as their net worth grows, it’s not unusual to see policies of $5 million or more.  Some of this is asset related, but other times, it’s lifestyle related. A physician with several teenagers behind the wheel, or multiple recreational vehicles, or perhaps a boat, may be exposed to more risk than a physician that doesn’t have that same risk profile. It really matters what risks you are willing to take in life and how much protection you need.

How much does umbrella insurance typically cost?

The good news about umbrella insurance is that it is typically very inexpensive in relation to other coverage, and you can get quite a lot for a modest premium.  Again, depending on your personal risk profile, policies can be as low as $200 – $300 per year for $1 million in coverage – but, tack on a boat, RV, or a driving teenager… and that premium can be a lot more.  

Umbrella policy insurers will often give you a discount if you bundle multiple policies together.  Auto, homeowner, plus liability will get a discount. But that same insurer will likely only let you purchase an umbrella insurance policy if you have a minimum level of liability coverage on those same policies, which may involve a larger premium on the underlying auto or homeowners insurance.

Next steps

To determine if umbrella insurance is right for you, start by taking an inventory, assess your risk profile, and evaluate your options:

1. Make an inventory of all of your assets. 

   
   

2. Review all of your property and casualty insurance such as your auto and home policies.

   
   

3. Outline your coverages – are there shortfalls in your basic coverage?  Address those first – the insurance company will likely require it anyway before you are eligible for umbrella liability.

   
   

4. Identify your gaps – do your basic liability amounts cover your assets or a potential judgment against you?

   
   

5. Identify your risk profile – where are you most exposed?  Do you spend a lot of time in your car?  Do you have minor children who drive?  Do you own recreational vehicles, a boat, or rental properties? 

   
   

6. Identify your options – can you get more coverage, is pricing attractive, can you bundle, etc.

   
   

7. Evaluate which options are best for you, and get after it!  You remain an attractive target – don’t compound it by being an easy one!

Looking for help navigating through umbrella insurance? Talk to our team of experts. We can help you with finding the right umbrella insurance policy today.