Umbrella Insurance for ODs: The ultimate bad day coverage

August 30, 2020
Week 2 of insurance we’re going to review what’s usually the most under-insured part of practice owners’ picture: umbrella insurance.

It’s best to think of umbrella insurance as lawsuit insurance—it protects the insured against losing their personal assets in the event of a judgement against them. Frequently this coverage is mixed up with malpractice insurance or other types of practice liability insurance, but these policies are mutually exclusive: practice insurance covers optometric operations, but nothing in a doctor's personal life.

Umbrella insurance covers personal liability such as auto accidents, libel, slip and fall events or dog bites. There are two common shortfalls in umbrella insurance: having enough of it and meeting underlying requirements.

How much is enough insurance?
Typically speaking, a person cannot be sued for more than they have in assets. A simple formula for determining umbrella coverage need is this:

Value of all assets (INCLUDING practice value and commercial real estate)
minus Protected assets (primary residence, qualified retirement accounts, one car)
minus $500,000 (keep reading to understand this number)
equals Umbrella Insurance Needed

Keep in mind if you get in a fender bender with someone and they go home and google you, chances are “Dr. Optometrist” will probably be the first thing that pops up in an online search. By perception alone, you are a lawsuit target.

Meeting Underlying Requirements
Umbrella insurance is excess coverage on top of homeowners and auto insurance, and kicks in once the designated underlying coverage has been exhausted. 99% of umbrella policies have a $500,000 underlying coverage requirement, which means if you are sued for $1,000,000, the umbrella won’t pay out the first $500,000; that portion needs to be covered either from your homeowner or auto policy OR out of pocket.

If someone slips on your icy sidewalk you should have salted, or your child says nasty things on SnapChat about another child and you get sued, your homeowner’s policy’s Coverage E (Personal Liability) would be the amount covered. It’s not unusual to see this amount at $300,000, which means if you were sued for $1,000,000, your homeowner’s would pay $300,000, you would have to pay the next $200,000, then your umbrella policy would pay the last $500,000. I don't know about you, but $200,000 would be a big check for my family to write.

For an auto policy, check out that set of numbers that is usually listed in a 100/200/300 format. If the last number isn’t $500,000, you would owe the gap between that coverage and $500,000 before your umbrella policy would pay.

One sneaky part of auto insurance is the uninsured motorist coverage. Many times, this coverage is less than the main coverage, probably because the loss rates with uninsured motorists are much higher than insured motorists. Make sure this portion of your policy has the $500,000 liability insurance coverage too.

Umbrella insurance is typically pretty cheap—maybe a few hundred dollars per million of coverage—unless you have young drivers on your insurance or a bad driving record. A word to the wise for those in hands free states: insurers are dropping umbrella coverage and even auto coverage for drivers with a distracted driving (or whatever your state’s version is) ticket.

Getting sued for something is painful and difficult, but protecting your finances for terrible occasions can make a bad situation a little better. Take a minute to check your coverage limits, and if you have any questions, schedule a call!

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