INSURANCE PART 2 : COMMERCIAL LIABILITY INSURANCE
National Network for Child Care's Connections Newsletter
Brenda Cude, Ph.D.
Consumer Economics Specialist
University of Illinois Cooperative Extension
Copyright/Access Information
In our last issue, we discussed the insurance needs of day care providers. If you are found guilty of the injury or death of a child or parent, it could cost a lot. You could have to pay medical bills, damages awarded to the victim or the victim's family, and court costs. Liability insurance pays defense costs and damage awards. Medical or accident insurance pays for doctor and hospital bills. It is usually part of your liability coverage. If it isn't, you need separate coverage.
Last month's article discussed three ways to prepare for this risk. You could set money aside in case you are found responsible for an injury or death. To self-insure, you would need at least $300,000. It would be difficult for most providers to build a fund that large.
You could also buy an endorsement on your homeowners insurance. This would extend the liability and medical payments coverage of your policy to your day care business. Unless you do this, your insurance probably will not pay claims related to your day care business. It usually costs from $30 to $170 per year.
Some homeowners insurance companies do not sell endorsements to cover day care operations. If they do, they often restrict the business. For example, they limit the number of children you can care for. They may not want to write the coverage if you have a pool or pets. Coverage may apply only to activities in the home. For example, you may not be covered on a field trip. Homeowners policies usually won't pay claims related to sexual abuse.
This article discusses a third option, a commercial liability policy.
Commercial liability policies are easier for day care providers to get than endorsements to homeowners insurance. Often, the only rule is that you meet state licensing standards. You must also meet underwriting requirements that define a safe operation. These may include restrictions on pools and pets.
Commercial policies cover more situations than endorsements. These policies usually cover events away from the home. Sometimes, you are covered while transporting children. The insurance often covers negligent supervision and damages related to serving food. Defense costs for sexual abuse claims may be covered but at a lower amount.
Fees for commercial liability policies range from $350 to $700 per year. Higher premiums often include an accident policy that will pay medical bills. Usually, an insurer will not sell a liability policy without an accident policy. Some insurance brokers or marketing services offer payment plans. After a down payment of $250 to $350, you can pay the rest in two or three payments. The policy is a tax-deductible business expense.
Unlicensed insurance companies in the "surplus lines" market write commercial liability policies and some accident policies. States do not license these companies. Therefore, they are not required to file their rates and policies with the state. A state Insurance Guarantee Fund, which pays consumers when licensed companies become insolvent, does not back these policies. Unlicensed companies exist because they are willing to cover risks that licensed companies do not cover. An unlicensed company may be very sound financially and have a good reputation. But it may be hard to find out about it. Some insurance agents and brokers cannot sell policies from unlicensed companies. (An insurance broker sells policies from more than one company. Each company decides who will write its policies in a state.) Check with local insurance agents or brokers to see if they represent unlicensed companies.
1. Buy some type of insurance if you cannot afford to self-insure.
2. At least, buy an endorsement to your home-owners policy. Buy one with at least a $300,000 liability limit. If you can, buy one with a $500,000 limit. If your liability limits are lower than this now, increase them.
3. If your homeowners insurance does not offer an endorsement or if you do not meet their restrictions, you have other options. You could switch to a company that offers an endorsement to cover your day care business, or buy a commercial policy.
4. If you buy a homeowners endorsement, consider adding an accident insurance policy. For $100 a year or less, you could buy $10,000 to $20,000 of coverage to pay medical costs if a child is hurt.
5. For adequate coverage, buy a commercial liability policy with a minimum liability limit for $300,000. Also, buy an accident insurance policy with a minimum limit of $10,000.
6. Before transporting a day care child in your car, check your auto insurance to be sure you are covered.
7. Limit your liability risks by making your day care home safe.
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