As a medical professional, your insurance needs aren’t boilerplate. An accountant doesn’t need to think about malpractice insurance when they forget to add the right number of zeros to a spreadsheet – doctors don’t have that luxury.
Likewise, the income brackets most doctors find themselves in bring along a host of insurance considerations. Where most people can purchase the cheapest insurance plans available, someone with significant assets needs to be covered more fully.
That’s where umbrella insurance can help, and where your current car insurance plan may be leaving you exposed. Here’s what you need to know.
What is Umbrella Coverage?
Also known as personal liability insurance, umbrella insurance is a back-up insurance plan that kicks in after your other insurance coverage has paid out, covering accidents that occur on your premises or because of you. Umbrella insurance covers property or equipment that can damage or harm others, like a pool, dog or trampoline.
If your friend slips on the deck during a pool party at your house, you could be personally on the hook for his medical bills – unless you have umbrella insurance. If you’re a landlord, umbrella insurance will protect you if the roof caves in and hurts your tenants.
In both of these scenarios, the injured party would file a claim with your homeowners insurance to pay for the costs he incurred. If that’s not enough to offset his expenses, he would file another claim with your umbrella insurance. If you didn’t have an umbrella policy, you’d have to front the rest of the money yourself.
The person could also decide to sue you for emotional distress and lost wages in addition to getting their expenses reimbursed. Umbrella insurance would pay for your legal costs as well as any extra judgments you’d have to cover. Umbrella insurance is like an extra blanket on a cold night – you might not need it all the time, but you’ll be glad you have it when the time comes.
Umbrella coverage seeks to protect you from having all your assets liquidated and seized because of a lawsuit or injury that occurs to you or your property. This type of insurance makes sense when you start to accumulate things you can’t afford to lose. A thorough policy will cover all your properties, vehicles, boats, retirement accounts and limited partnerships or LLCs.
Related: Larry B. Keller talks about term insurance for physicians.
A 2013 report found that 78% of all umbrella insurance claims are related to car accidents, with youth drivers as the biggest cause. If you have dependent children who are driving under your auto insurance policy, you should seriously consider umbrella insurance.
The amount of coverage you need varies based on your income, assets and risk factors. Most policies start at $1 million and go up to $10 million. Your policy should be enough to cover all your current assets. As you build your career and acquire more wealth, you may need to buy a larger policy.
Buying umbrella insurance is incredibly affordable and average policies cost between $150 and $300 a year for $1 million worth of coverage. For less than $25 a month, you can sleep peacefully knowing that almost nothing could happen to take away your holdings.
Is Self-Insurance Enough?
Some argue that instead of paying an insurance company a premium every month for umbrella coverage, you should self-insure instead. Self-insurance means having enough in liquid savings that you could afford to cover any kind of lawsuit or other catastrophe by writing a check. One example of being self-insured is canceling your collision and comprehensive coverage, instead of saving enough to cover the cost of a new car.
When it comes to umbrella insurance, having enough in liquid savings is almost impossible when you’re dealing with other financial obligations. It’s more financially sound to pay a small insurance premium every month instead of trying to cover all your bases.
How to Buy Umbrella Insurance
Most major insurance companies offer umbrella insurance, but they all have different policies and rules on what they will and won’t cover. Some won’t pay for any damage that occurs if you’re using an ATV or Jet Ski, for example. Others might be firm on how much they’ll pay out in specific scenarios.
Before you sign up for umbrella coverage, compare the policies you find and ask about any loopholes, exemptions or restrictions. Do your research thoroughly before signing up.
Related: This is why disability insurance for doctors is important.
If you decide to purchase an umbrella policy, the insurer will likely ask you to max out the liability coverage first on your auto and homeowners policies.
You don’t have to wait until you earn your first $1 million to buy an umbrella policy; you can buy it when you’re still a resident. Call your current insurance provider and ask them what their rates are or find an insurance broker who can give you quotes from various companies.
Why Doctors Need More Car Insurance
Most people rarely update their car insurance coverage, unless they buy a significantly more expensive car or add another driver to their policy. It’s not uncommon for a medical resident to become a practicing physician and keep their previous coverage.
That attitude is dangerous, risky and possibly very expensive. When a normal person gets into an accident caused by another driver, they typically ask for the other person’s car insurance details and let the two companies hash it out. It’s rare for a victim of a car accident to sue the other person, unless they were seriously injured in the wreck and lose the ability to work for a significant period of time.
Doctors are more susceptible to lawsuits. When people find out you’re a doctor, they’ll be more willing to file a claim and ask for damages. A successful lawsuit could lead to you losing all your assets and having your wages garnished. Other high-salary professions may fly under the radar, but most people are aware that a doctor earns a decent living and could afford to pay out a lawsuit settlement.
Related: Let’s talk about the right way to buy a car.
How much car insurance you should buy depends on your vehicle, where you live and how much you drive. Buying more car insurance might seem like a waste of money when you’re a careful driver, but consider the worst possible outcome. Would you be okay with losing everything because of one bad decision after a long night of work?
How to Buy More Car Insurance
If you keep your car insurance at State Farm, your homeowners insurance at Geico and your life insurance with MetLife, you’re probably overpaying. Most insurance companies offer multi-line discounts if you have more than one policy with them. Bundling your insurance policies with one company will almost always save you more money than keeping your coverage separate.
Some companies also reward loyal customers, with extra discounts for each year of service. You should still compare prices every year to make sure you’re getting the best deal, but it sometimes pays to stay with the same provider.
Call around to a few different companies to find a quote for all your insurance needs. Get quotes based on the same deductibles and coverage amounts. If you’re also looking to buy umbrella coverage, ask how much you’d have to increase your homeowners and auto insurance to qualify for umbrella insurance.
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