Flipping through the local news trying to find things for my kids to do this weekend, I bypassed more than one article about fried turkey disasters, car wrecks and large-scale family fights. While I didn’t take the time to read these events, they reminded me of why a small, often misunderstood type of insurance policy is so very important: the personal umbrella policy.
Umbrella policies are a bit of a mystery to most ODs I speak with. Everyone seems to understand that they need one, but aren’t sure how much or why.
First, it’s important to understand how umbrella policies work. They are additional coverage on top of two essential coverages—home and auto. Both your home and auto policy have liability coverage that protect you against pretty much everything that could go wrong in your personal life except criminal conduct. Coverage usually ranges between $250,000 and $500,000 to protect you in the event of a lawsuit. Anything above that is your responsibility, and that’s when an umbrella policy kicks in.
The word “liability” sometimes seems obscure, but the risk is real. These are some common uses for umbrella policies:
- Auto accidents—especially important if you have young drivers!
- Dog bites
- Accidents on your personal property (slip and fall on ice, drowning in a pool, etc)
- Pain and suffering
- Legal defense costs related to all of the above
- Since it’s the holiday season, consider the seasonal risks associated with driving after a holiday party, frying turkeys, a poorly set up Christmas tree (unfortunately I have seen a tree fall on a child before) and New Year's fireworks
Umbrella coverage usually comes in $1 million increments, and should be matched to your non-protected asset base. Protected assets include your home, any irrevocable trusts and your retirement accounts (like 401ks, IRAs, etc). Everything else—including the value of your practice—can be fair game in a lawsuit. So if you have personal investment accounts of $500,000, real estate of $750,000 and your practice is worth $1.25mm, your should have $2.5mm in liability coverage between your homeowners/auto and umbrella.
One common mistake with umbrella insurance is not meeting the underlying requirements in your home and auto policy. For example, if your umbrella policy has a $500,000 underlying requirement and your homeowners liability coverage is capped at $300,000, you would be responsible for the $200,000 “gap” before your umbrella policy would pay out in the event of a claim. A very common gap is having auto liability that caps at $250,000 instead of $500,000. I don’t know about you, but $250,000 is a lot of money that I’d rather not come out of pocket for if I were to be sued.
Another mistake is confusing the coverage you have for your practice with personal coverage. The liability coverage you have for your practice does not extend to your personal life or vice versa. You do need separate policies for practice and personal.
The likelihood that you need your umbrella policy is slim, and the premiums reflect that—usually only a few hundred dollars per million of coverage. But before you decide this coverage is unnecessary, take a minute to google your name and see what pops up. I would argue that “Dr. Schmook, OD” is a bit of a target if someone is thinking about suing you.
With my clients, we review this coverage and others as part of their Personal Wealth Action Plan, but it’s very simple to take care of yourself. If this is a slow time of year for your practice, take 5 minutes to call your insurance company and make sure your policies are set up correctly.
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