Understanding liability insurance

January 22, 2019

One of the most powerful and predictable layers of defense every physician must implement is a complete liability insurance program.

Asset protection strategies available to doctors take many forms. One of the most powerful and predictable layers of defense every physician must implement is a complete liability insurance program.

Get adequately insured now 

As with all asset protection planning, insurance must be implemented in advance of a problem; you can’t insure the car after the accident or the house after it burns down. We routinely field calls from physicians seeking help after they have experienced a significant liability that was either uncovered by insurance or exceeded the limits they were carrying. After I explain that they can’t legally implement any form of legal planning against a preexisting exposure, the conversation often leads to insurance coverage that was available and “could have” helped if only they had been aware of it or had acted like they “always meant to but never got around to.” 

Work with an expert and buy until it hurts 

There is, dollar for dollar, nothing more effective than insurance when it comes to addressing many specific, predictable risks. Erring on the side of caution and buying at the top of your budget in terms of the actual coverage limits (which you should always buy as efficiently as possible) is the best money you can spend on protecting your wealth and the practice that generates it. This means working with an experienced, multi-line insurance broker who has access to all the top insurance carriers and will understand your business and actively make suggestions about the types of coverage you need and the limits that are appropriate. 

What we often find is that some agents are merely order-takers, following the path of least resistance and selling only what you ask for at a price you can’t argue with, especially with cost-sensitive physicians who often feel everyone is out to take advantage of them. We also see this “penny wise and pound foolish” behavior among those who regard it as an unnecessary expense. Nothing could be further from the truth, and those following disciplined financial and savings programs like FIRE (financial independence, retire early) devotees overlook the fact that years of disciplined spending and savings can be wiped out in an instant for those that are inadequately insured. These agents and their clients routinely overlook some important basics:

  • A personal liability “umbrella” policy of at least $1 million (but ideally more) is mandatory protection for all physicians and those who have a home or car in particular, regardless of whether they are leased or owned. That said, we have also seen unexpected liability arise from bicycle accidents, dog bites, and other issues. I’ve previously shared what happens when doctors skimp on this first layer of defense. 

  • Insurance is not “a policy;” it is a “system” that has many layers of overlapping coverage in a variety of areas. You cannot rely on a personal liability umbrella policy to protect you from almost any professional liability. Those require separate insurance of multiple kinds, not just malpractice insurance.  

  • Insurance is only one of several layers required to protect your success. You cannot rely on insurance alone to protect you. Your insurance company would be making a terrible business decision if they agreed to protect you from everything and anything that could ever happen, no matter how much it costs, for the fixed amount you pay them every month. There are routinely gaps in what I describe as the “width” of the coverage you may have in place, meaning how many different liabilities are covered and the dollar limits of the coverage you have in place for each exposure.

You also must actively protect assets that may be exposed beyond your coverage limits and limit your target value to your insurance coverage now, while you can legally do so. Asset protection planning has been the sole focus of my practice for 15 years, but before that I was a litigator. I share one simple fact I learned in that role with all those I counsel: Plaintiff’s attorneys do not pursue two kinds of defendants; people who don’t have any assets and people who have assets we can’t reach. It’s just math, and this is a fight you can often win before it starts. We will continue to examine more details on these issues going forward. 

Attorney Ike Devji has practiced in the areas of asset protection, risk management, and wealth preservation law exclusively for the last 15 years. He helps protect a national client base with over $5 billion in personal assets that includes several thousand physicians and is a contributing author to multiple books for physicians and a frequent medical conference speaker and CME presenter.