One of the biggest secrets in the world of insurance is an “Umbrella Insurance” policy. It’s a secret for three main reasons:
- Consumers aren’t actively educated about it because the insurance marketplace is so transactional instead of educational
- Insurance customers don’t know who or what to ask to get information
- Insurance agents don’t get paid much for umbrella policies
What is an umbrella insurance policy? It’s an excess liability policy, generally added to your car insurance policy, that covers against occurrences where your car insurance is exhausted. The most important part of an umbrella policy is the coverage against personal lawsuits (this also includes frivolous lawsuits). Currently, without an umbrella policy, your car insurance is likely the only lawsuit insurance you have.
I work with physicians mostly. I encourage them to never say, “I’m a doctor, are you OK?” after a car accident. I prefer them to say, “Are you OK?” And it doesn’t matter who’s at fault in the accident. If you’re wearing scrubs or a white coat (and you could be just a resident, or even a medical student!), you look like you make a lot of money. Unfortunately, that appearance of making money means a potential opportunity for some. So an umbrella insurance policy is a must-have for a doctor, even a doctor in residency or fellowship; there will always be a personal lawsuit target on you. Think of an umbrella policy as a personal malpractice insurance policy. It covers you both in the car and out of the car. If you get sued personally, it shows up. If you get sued professionally, that’s on your professional liability insurance.
How do you get an umbrella policy? If you were to have any conversations with me as your advisor, you would be encouraged to get one immediately. Here’s how it works: there’s a minimum amount of car insurance you must have in place in order to obtain an umbrella policy, and that figure varies by state and company. Call or email your car insurance agent, and ask for quotes for the minimum car insurance necessary to justify an umbrella insurance policy. In Oklahoma, that’s usually $500,000 aggregate per claim. Also request a $1,000 deductible. Since car insurance is so transactional, a low deductible (I generally see $500 deductibles) is usually established – mainly because it raises the premium and pays the car insurance agent more! A lower deductible = less premium. (You take on an additional $500 of risk on the front-end via a higher deductible, and in turn, the insurance company adds much more on the back-end by increasing the policy.) That premium savings often pays for the increase of car insurance. Then add at least $1,000,000 of umbrella insurance. If you don’t have teenage drivers, elderly drivers, or an awful driving history, $1,000,000 of umbrella insurance is usually around $10-$15 per month! Depending on where you are in your financial life, I suggest $1,000,000 or more.
So you had $100,000 of lawsuit protection (through your basic car insurance by having a $100,000 auto policy). For the same premium or less (through maximizing the savings on your deductibles), you created $1,500,000 of lawsuit protection! You did this by upping your car insurance to $500,000 and adding the $1,000,000 of umbrella insurance. Your car insurance agent did a lot more work and got paid the same amount as the $100,000 car insurance policy with low deductibles. It’s one of the insurance industry’s biggest secrets.