Buying a $3 Million Umbrella Insurance Policy for $170 Per Year

Not long ago, a somewhat wealthy friend of mine realized he had done a knockout job earning money and hanging onto it, but he hadn’t taken the best precautions to protect his hard-earned assets.

That didn’t matter much until suddenly, it did. He was sued for millions and spent several agonizing years with a substantial portion of his assets potentially at risk. A judgment against him could have wiped out much of what he had earned over the prior decade. All because he generously volunteered his time on the now-defunct hospital’s Board.

I’m talking about “my friend” because it would be foolish to tell the world exactly how much insurance I have, right? Might as well tattoo a bullseye right between my scapulae. Ahhh… who am I kidding? As a physician, I’ve already got a big whopping target on my back no matter what I do. You probably do, too.

After my friend was dismissed from the legal proceedings and the dust from three and a half years of uncertainty settled, he proceeded to lock in an umbrella policy that he was unable to attain while being party to that stupid lawsuit.

 

Buying a $3 Million Umbrella Insurance Policy for $170 Per Year.

 

 

What is Umbrella Insurance?

 

I’ve stated before that I would never buy umbrella insurance because an umbrella costs about ten bucks, and there’s no point in insuring something you can easily afford to replace. I’m easily amused.

Umbrella insurance, of course, is not meant to replace a leaky umbrella. It’s an insurance policy that protects you from damages that exceed the limits of your homeowner’s and auto insurance policies. If there’s a chance you could be sued for millions, and if you’re a human with a good job, I’m telling you there’s a chance, you really ought to have a policy in place. Just in case.

lucidity locumsIn addition to helping protect you against lawsuits related to anything that happens on your property or related to your automobile(s), umbrella insurance can also pay for legal defense costs, injury treatment, funeral costs, and even lawsuits involving slander or libel.

I can say with a high level of certainty that my friend has no plans to increase physical, verbal, or printed attacks on his fellow man, but he does take solace in the fact that if something unexpected were to occur (again), he would be much less likely to be on the hook for significant damages.

 

Would Umbrella Insurance Have Protected My Friend?

 

Quite possibly. The policy he obtained states the following:

“We do cover such injury or damage resulting from any act or omission by an insured while acting within the scope of his or her duties as an officer or member of the board of directors of a non-profit corporation or organization.”

 

It’s important to read the fine print. In this case, it must be a non-profit board. I’ve also read that a paid position on a Board of Trustees may not be covered by some policies. It’s also imperative to ensure the Board has a Directors & Officers (D&O) insurance policy. My friend’s Board did, but laughably, the policy failed to cover the Board members in the event of a hospital bankruptcy.

Laughably may not be the best word. Regrettably may be more appropriate, but clearly, any policy that doesn’t cover the one event most likely to result in a lawsuit is a total joke.

Had my friend had this coverage in place prior to being sued, he might have avoided racking up a five-figure sum in legal bills. On the other hand, the presence of a policy may have kept him in the lawsuit longer. The legal proceedings continue, and the federal bankruptcy court recently refused to dismiss claims against numerous members of the Board.

A lack of umbrella insurance meant that there were no deep pockets of an insurance company to go after. I imagine the opposing attorney knew it would be more difficult to reach a judgment against my friend’s personal assets than reaching a settlement with an insurance company.

That’s no reason to avoid purchasing an umbrella policy; while it’s probably true that it was very unlikely that my friend’s seven-figure taxable brokerage account was going to be vacated due to this lawsuit, even a very small percentage chance is too much.

 

 

Who Should Have Umbrella Insurance?

 

I would imagine most readers of this blog ought to have a policy. If not now, probably at some point in the future when you’ve got a higher income and / or net worth.

Nerdwallet says umbrella insurance is commonly purchased by people who own property, have significant assets, are worried about liability claims when traveling abroad, or own dangerous things like trampolines, pools, or dogs (some breeds may not be covered).

A number of activities can increase your likelihood of being sued, including landlording, coaching youth sports, volunteering, and engaging in sports in which your clumsiness could put others at risk.

Basically, if your career, assets, or extracurricular activities put you at an increased risk of being sued, you should be covered with an umbrella policy. Just being high-income professional puts you in that category.

How Much U

mbrella Insurance Should You Have?

 

Like term life insurance, these policies are relatively affordable, and it’s better to err on over-insuring rather than under-insuring. Coverage starts at $1 Million and depending on the company, commonly goes up to $5 Million or $10 Million.

A rule of thumb that I’ve heard numerous times is to insure roughly an amount equivalent to your net worth. You might subtract those assets that are not at risk to creditors like a 401(k) balance, IRA, or perhaps your primary home, depending on the laws of your state.

My friend opted for $3 Million in coverage which is more than he’s worth after subtracting assets that are protected by state law.

 

The Cost of a $3 Million Umbrella Insurance Policy

 

Our friend was pleased to learn that he could add a whopping $3 Million in coverage to his insurance portfolio for less than fifty cents a day.

bankofamericaWhile some insurers do offer stand-alone umbrella policies, most people would be well-served to start with a quote from the company that covers their home and automobiles.

In this case, the umbrella insurance quote was $296 for a $3 Million policy from Auto-Owners Insurance.

The quote below actually represents a price of $507 with $211 in discounts for owning multiple policies with them and being a proud Golden Gopher alumnus.

The discounts add up to 42% of the $507 sticker price. Note that adding the second million dollars in coverage is listed as $141 but actually costs an extra $82 after the 42% discount. The third million dollars in coverage? Another $50. If my buddy were to add a fourth and fifth million dollars of coverage, the additional cost would presumably be under $100.

 

Umbrella Insurance Quote

 

When adding the umbrella policy, multi-policy discounts were triggered, dropping his auto insurance by $43 a year and homeowner’s insurance by $83 a year for a total savings of $126.

The actual cost of adding the policy was $296 – $126 = $170. That’s about $14 a month or 47 cents a day.

It’s a small price to pay for peace of mind.

 

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33 comments

  • Caroline

    I concur wholeheartedly with the need for umbrellas. My only quibble is that the amount you need is unrelated to the amount of your assets. You are not insuring your assets. You will need to actually think about how much a claim is likely to be.
    Your broker should be able to help with that.

    • It’s better to over-insure than under-insure. The more assets you have (or are presumed to have), the more likely you are to be sued and the higher the amount of potential damages. But to your point, I have heard your wages can be garnished if you’re successfully sued and don’t have the assets to cover the damages. Your assets should set the floor. The ceiling depends on your comfort level.

      Cheers!
      -PoF

      • Sara

        Exactly – if someone has a judgment against you then they can place a lien against future earning/assets.

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  • I have umbrella insurance as well and it gives peace of mind which is the whole point of insurance.

    One point to consider is that because umbrella insurance is so cheap it would be smart to get as much as your target net worth.

    The reason I suggest that is because I got umbrella insurance that previously was covering what my net worth was at the time with plans to raise it higher when my net worth grew. Unfortunately I had a run in with some road debris that required a claim on my auto insurance (A Tesla is a bit expensive for repairs and even though I had a high deductible ($2k) the cost of repair was in the 5k range).

    I then later wanted to raise my umbrella about 6 months later as my net worth grew past my umbrella. Turns out that because of that one claim they would not increase it. Said I have to wait a period of 3 years before I could reapply.

    It’s not the end of the world but if you can swing the extra cost for more protection up front (probably a $200-300/yr more cost for me) it would be prudent to do so in case you do have some claim in the meantime that they will then deny you for increase.

  • Completely agree that this is necessary. I bought mine from the same group that provides home and auto for us and it was silly how cheap it was.

    Some things to mention:
    1) when most companies sell this to you they make you up your home and auto insurance to certain cut offs so that the umbrella policy doesn’t kick in too quickly. May have to factor this into price as well.

    2) I think you might want to aim for future net worth goals if you are just starting out and haven’t gotten there yet. I am definitely not worth the $2million in umbrella insurance (yet).

    3) I like reading through the various events that might be covered under these kinds of policies… They read a bit like the farmers insurance commercials… My favorite (since I love golf) including hitting a golf ball off the course, right into someone’s car, who with shock and horror then drives that car into someone’s house…. That would be covered.

    Good topic for a post. Gets my gears turning.

    TPP

  • My wife and I opened an umbrella policy about 5 years ago. The price is so low that it was an easy decision. Our policy is only for $1 million but we may increase that at some point.

  • I’ve had my umbrella policy since our kids were young and we had play groups over all of the time. I was just imagining what would happen if one of those play group kids took a header down the stairs!

    It is amazing how inexpensive the policies are. My current policy is for $1MM which covers my non-retirement assets, but in a few years I may bump it up to $2MM.

  • We initially had a $1 mill. policy, but upped it to $2 mill. a couple years ago. The policy runs us $250 a year, so it’s definitely a no-brainer.

    We’ve never had to use it, but with our rental property and small businesses, this is definitely a cheap and easy feel-good policy to have in place.

    — Jim

  • We have an umbrella policy for $1 million and it costs us about $150 per year. I’m surprised that yours for $3 million only costs $170. Either way, it’s one of the cheapest insurances to get and gives you a little extra peace of mind. Highly recommended

  • wister5

    When you own a pool AND a trampoline…it’s a must. LOL!

  • I’m not a physician, but with rental property and a reasonably high net worth, I felt it was worthwhile to get an umbrella policy. I think I paid closer to $300 (maybe I should have shopped around for a better deal?) and I felt like that was a small price to pay for a little piece of mind.

    • AT

      We are not a physician, but our net worth is about $2.2M. I just got a quote and it is $428/ year for $1M and $750/ yer for $2M. We have all our policies from rental properties, auto, home, life etc with the company. Am I missing something? or I should start shop around.

  • Psy-Fi MD

    Umbrella insurance is definitely a must for physicians and other high net worth individuals. It’s something that can be obtained for pennies on the dollar. We have a $4 million umbrella policy that cost $300/year.

  • I can’t imagine anyone wouldn’t want at least 3 Million in umbrella. it is so cheap and provides a lot of peace of mind. An important lesson to learn for your friend.

  • We purchased umbrella insurance for the first time earlier this year. It reminds me of flood insurance in that it is not very expensive and provides an additional piece of mind.

  • faille

    Thanks to this article I went to check on the policy I bought last year and realized it was about to expire due to changing my credit cards! They never sent me a notice of failed payment. It is a $1m policy, which I just exceeded with my net worth although the VAST majority of that is in my house and retirement accounts. It does give me peace of mind to know that those assets should be protected in the event of the unthinkable.

    • I’m happy to help! How bizarre the insurance company would let the policy lapse without even attempting to contact you. One would think they appreciate collecting those premiums.

      Best,
      -PoF

      • This happened to me too!
        I’m such an absent-minded dope it was probably two years before I even noticed. We probably had dozens of kids and workers in our house during that uncovered interval. I was able to restart it though. I think it stopped when I moved and the mail didn’t get forwarded. I have several other policies with the same company so I would have thought someone on their end would have noticed, but that didn’t happen.

  • Dentist In Debt

    How do umbrella policies work with your spouse? Do both partners need a policy, or do you simply put both names on the family policy? I envision the proverbial slipping on an icy sidewalk and someone wanting to sue for damages, so they sue the wife rather than the husband (or vice versa) because the policy is only under one person’s name. Or am I overthinking this?

    • The policies should cover you and all members of your household, including your spouse. Always a good idea to review the policy documents or ask your agent to verify, particularly in a situation that may have gray areas.

      Best,
      -PoF

  • Muela

    I opted for a more expensive umbrella policy that allows you to file a claim against your own policy. A typical scenario would be if you were hit by an uninsured driver then your own umbrella policy would cover any excess beyond your medical and disability coverage. I can’t remember the terminology, but the cost difference was significant. I think it was around $1000 for $3 million. It made sense to me to buy it but I don’t hear about this product very often.

  • Gary Simms

    I have professional and personal umbrella policies.

    Pro takes 100,000/300,000 to million.million for $1,000 A year

    Personal is 5 million for $478 A year.

    Check out the books Insurance for Dummies and The Invisible Bankers.

  • Delivery Boy

    You need to think about umbrella insurance as a bobber (like for fishing). It floats on top of whatever underlying policy exists. It can, for example, float on top of a $300,000 auto policy, or on top of a homowners’ liability policy of $500,000. Please read the fine print of course because some policies have to insure both the underlying risk and the umbrella policy. Umbrella policies usually do not cover professional liability risks though. All you doctors reading this cannot buy an umbrella policy to float on top of a professional liability policy. That is a different risk. I am a defense attorney and I read this stuff. I should also read your employment contract because that is what I usually look for. I don’t care what it says about your salary, hours, vacation, etc. I care about whether your employer will defend and indemnify you against professional risks way beyond tiny little $1 million policies.

  • My question may or may not be answered by the comment above by Deliver Boy.

    The scenario looks like it would be professional liability insurance arena. Would umbrella really cover him if he was on the board due to his medical background?

    I’m a nurse and there’s always a debate whether we should have our own liability insurance above what the hospital offers. Would the hospital find a reason to not protect us if something was missed in documentation? Would lawyers go after us if there was something bigger pot of money to seek? Would an umbrella cover us here too?

    Have you ever written about professional liability insurance?

    Thanks for the post!

  • Delivery Boy

    Mathew Thomson:

    I am the Delivery Boy. I do not have a website. I float around these web sites and make sure readers understand what they read. I am an angel. I help out the best that I can. I am a superstar. I make sure readers know I am out here to help you. I am the dark side too. You doctors need to talk to me. I am the best defense attorney in the nation. I wish to remain anonymous.

    I have a brother who is a radiologist and a sister who is an oncologist. I like physicians. I do not want to see doctors get ripped off. Yes, you can get a $125.00 umbrella policy. That is a tiny sum for a reason. It does not cover your professional liability exposure. Do you have a pool? Are your kids driving your cars? Well hell yes, pay $125.00 a year to buy coverage that floats above your home and auto insurance.

    But your professional liability exposure is different. It is a different risk. As a nurse, Mathew Thomson, if you are under contract, you should understand what your contract covers. Are you union? Do you have your own contract with language that addresses this? You have to understand what your contract is about. You have to understand what your exposure might be.

    When I look at contracts, I only care about who is paying to protect you for lawsuits. I have read my families’ contracts. I don’t give a shit how much you might have to work. I don’t care if you have no vacations. I don’t care about anything other than what happens if you are sued. Delivery Boy only cares that you are protected from exposure. Delivery Boy is the blessed good attorney who defends you health care professionals. You need Delivery Boy.

    Capish?

  • Anonymous

    I still don’t have an umbrella policy after years of being on my to-do list. Just finished reading this post and send an email to my insurance guy for a quote. I should hear from him tomorrow AM. This was the kick in the pants that I needed. Thanks.

  • You cannot overstate the important of protecting your wealth. It takes many people decades to build and grow their nest egg. As a trial attorney, I see how one incident or mistake put it the entirety of it at risk. An umbrella policy is must, particularly given the modest expense.

  • Arrgo

    I added a 1M policy for about $170 yr. I’m single and not a physician. People can and will sue you for almost anything these days. The legal bills alone can go into the tens of thousands. Think about the amount of money in a year that you blow on stupid stuff. Spending the money on an Umbrella policy is money well spent.

  • I’ve got to say, I’m just starting my education about the problems faced by high-income earners in the medical community. My wife will begin practicing this time next year and I’m attempting to prepare us the best way we can for when she starts. I actually thought about getting an umbrella policy to supplement her medical malpractice and our auto and home policies. After reading what you had to say above, I’m even more convinced of its importance. I will definitely review the finer language to make sure the umbrella policy would cover her appropriately against liability.

    Thanks for sharing.

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