Rainy Day Coverage: The Unexpected Value of Umbrella Insurance

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During my college days, I "shared" a car with several of my friends for short trips into town. New Hampshire, then and now, does not require a driver to possess an auto insurance policy.

At the time, saving a few hundred dollars more than paid for gas and seemed like a great deal.

We were living up to the well-earned New Hampshire state motto, "Live Free or Die," blissfully unaware that we were one icy patch from a massive financial liability.

Fortunately, we never had to experience the difference between required and necessary, and I can only shudder at my foolishness. Umbrella insurance demonstrates this distinction.

Most insurance policies are concrete and easy to understand from the name alone: health insurance, automobile insurance and malpractice insurance.

The name "umbrella insurance" does not convey what is being insured, and while the alternate name "personal liability insurance" comes a bit closer, it remains vague. We will cover the basics of umbrella insurance.


What does umbrella insurance cover? The short answer is that it covers almost anything not covered (or not fully covered) by your other policies.

A simple example would be someone slipping on your front step or a handyman falling off your roof.

Your homeowner's policy would cover to a certain limit, but the claim may exceed that. Alternately, the claim may be completely outside the coverage of your policy.

In addition, an umbrella policy can also pay for legal defense costs if needed.


Do I need umbrella insurance? As a physician, the answer is almost certainly "yes." Even without owning land, a townhome or condominium conveys liability. Additionally, an accident may occur in a vehicle that you own, even if you are not the driver. In either case, umbrella coverage would cover above or outside the limits of your baseline insurance policies.

Any property owners are at risk for claims, but this is a unique vulnerability for physicians as this profession is known (not always accurately) for high net worth. There are many cases which can famously exceed policy limits where an umbrella policy is required for adequate coverage.

Finally, there are special circumstances involving pools, trampolines, dogs or activities such as coaching or volunteering which may increase liability. You will need to discuss your own specifics with an insurance agent to make sure your individual items and activities are sufficiently covered.


How much will it cost? The good news is most incidents fall below the coverage cap of your existing insurance, meaning that umbrella coverage is truly catastrophic coverage. Just as with a higher deductible policy, less likely to be needed means less expensive.

The specific cost would be partly related to your current coverage, but one million in coverage should be obtainable for less than a few hundred dollars per year. Additionally, by utilizing your existing insurer you can obtain a multi-policy discount.

There is no clear answer for how much umbrella coverage you need, but a good minimum point would be at least equivalent to your total net worth.

Even better would be to exceed your anticipated net worth in 5-10 years, in order to avoid repeatedly updating your policy.

In short, the umbrella should function as a never needed backup to your existing insurance. It should be the least expensive but most comprehensive policy you ever purchase.

Whether you live in New Hampshire or Hawaii, umbrella coverage can help you "live free" of worry, rather than "free" of protection.

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This article was authored by Thomas. J. O'Neill IV, MD FACC, cardiologist at Wake Forest Baptist Medical Center in Winston-Salem, NC.