YOUR INSURANCE NEEDS: PART 1
National Network for Child Care's Connections Newsletter
Brenda Cude, Ph.D.
Consumer Economics Specialist
University of Illinois Cooperative Extension
Copyright/Access Information
Like other small business owners, family day care providers need
life, health, and disability insurance to protect them from losing
their income. Because they work with children, day care providers
face unique risks.
The greatest risk a provider faces is the injury or death of a
child or client. If an insurance company or a jury holds the provider
responsible, he or she could lose great amounts of money. Providers
should prepare for this risk now.
Day care providers risk three types of financial loss. You may have to pay a victim's hospital and doctor bills. If there is a lawsuit, you may also have to pay damages to the victim and/or the victim's family. And you could have to pay court costs for defending yourself.
Liability insurance usually will pay for damages awarded by the court. These policies also will pay your defense costs.
Medical or accident insurance will pay for the victim's doctor and hospital bills. Most liability policies include medical and accident insurance. If your policy does not, you might need separate coverage.
Some providers feel they do not need insurance because they have never had an accident. Unfortunately, you can never predict what might happen. You could have an accident tomorrow. However, your good record may be helpful in buying insurance. You will probably pay less for your insurance than someone with a history of accidents.
Sometimes providers try to substitute waivers signed by parents for insurance. This is unwise. Legal advisers agree that these will not hold up in court.
There are three different ways for providers to reduce their liability risk.
SELF-INSURE. Establish a savings fund to use if someone files an accident claim. For example, you may decide to put money into the bank to cover any damages to your furniture made by children. Setting aside a few hundred dollars each year may cover this risk. Most providers cannot afford to self-insure against the possibility that a child will be seriously injured or die. That would require a savings account of at least $300,000.
EXTEND YOUR HOMEOWNERS COVERAGE. Most insurance companies do not cover day care operations under the regular homeowner policies. Some companies will let you extend your liability coverage, however, by buying an endorsement or rider to your homeowners policy. The premium for the extra coverage is usually low. However, the coverage is also limited.
BUY A COMMERCIAL LIABILITY POLICY. This is a special policy usually purchased by businesses. Premiums range from $350 to $700 or more per year. The cost is higher because this type of insurance covers much more than a rider on a homeowners policy.
There are real risks if you do not have an endorsement on your homeowners policy or a separate liability policy. As already mentioned, your homeowners insurance company will not pay claims related to your day care business. They may not pay other claims either, even if they have nothing to do with your day care business. They may consider your homeowners policy invalid because you did not inform them that you were operating a business in your home. Also, the company may choose not to renew your basic homeowners policy if they find out you are providing day care without special coverage.
More information on extending your homeowners policy is provided below. Information about commercial liability policies will be provided in the next newsletter.
Not all homeowners insurance companies offer endorsements for day care, but many of them do. Check with your own company to determine if this option is available. If your company will not insure your business, they may not want to continue your regular homeowners policy either, unless you buy a commercial liability policy. If you do not want to buy a commercial policy, you may need to change to a company that does offer a rider or endorsement to their homeowners policy.
Homeowners insurance companies write day care endorsements when day care is "an incidental activity, not a business." To minimize their own risks, companies will only write policies under some conditions.
For example, most companies restrict the number of children you can care for besides your own. Many companies will only write an endorsement if you care for only three, four, or six children (usually not including your own). Some companies also will not cover homes that have pets or pools because the risk of injury is greater in these homes. Most endorsements only cover activities that occur at your home. Accidents that occur at the park or while walking a child to school would not be covered by these companies. No homeowners endorsements include the expense of defending you against sexual abuse.
Because the coverage is fairly limited, premiums can be very low if you extend your homeowners coverage to your day care operation. A survey done in 1990 in Illinois showed the yearly cost ranged from $30 to $170. This is a business expense, and it is tax deductible.
If your day care situation cannot be covered under your homeowners policy, or if you want higher levels of coverage, you will want to consider a separate liability policy. Look for information about these policies in our next newsletter.
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