Insurance Needs for a Child Care Business
It’s essential even if the law doesn't require it
Day care centers and other child care providers need insurance to protect themselves from third-party claims and other types of losses, such as damage to personal property. Insurance products designed for child care providers are available from specialty insurers like Markel and Philadelphia Insurance Companies. They can also be purchased from an online insurance seller like Next Insurance or Insureon. If you operate a child care business from your home or a local facility, you may want to consider these various types of insurance.
Licensing and Insurance
Child care providers are regulated by their state. The laws vary and different rules may apply to different types of providers. For instance, California has separate requirements for child care centers and family child care home providers. While a few exceptions apply, the law generally requires both types of providers to secure a license. It also requires family care providers to purchase liability insurance.
All child care providers should purchase basic liability insurance even if their state doesn't require it. This coverage is essential whether providers care for children in their homes or in a day care facility.
Child Care Risks
Child care businesses face numerous risks that can lead to lawsuits. Here are some examples:
- Hitting, biting, slapping, and more by other children
- Falling objects
- Faulty toys or defective equipment
- Tainted food
- Ingestion of toxic substances
- Negligent acts committed by staff members
- Alleged abuse or molestation
- Failure to provide the level of service parents expect
There are several types of liability insurance a child care provider may need including general liability, professional liability, and auto liability. These coverages may be provided separately or combined into a business owners policy or other package policy.
[callout] Important: Business owners should not rely on their homeowners policy to cover a child care operation without checking with their insurer. This is important because most homeowners policies contain business-related exclusions. While some insurers will cover a home-based child care business under a homeowners policy, the policy must be endorsed before such coverage will apply.
Child care businesses may be sued if children in their care or visitors to the facility are injured on the premises. Claims resulting from most of the risks cited above are covered by general liability insurance. This coverage applies to claims against the provider or its employees for damages because of bodily injury or property damage caused by an accident.
Most general liability policies include medical payments insurance. It pays the cost of first aid and medical treatment for children or adults who are injured on the premises. Medical payments insurance is no-fault coverage, meaning it applies in the absence of a lawsuit.
Physical Abuse or Molestation
Child care providers may be sued based on allegations that a child was physically abused or sexually molested. Claims may arise from acts allegedly committed by the operator or their employees, volunteers, visitors, or family members. In many cases, the plaintiff claims the provider failed to adequately supervise an employee or volunteer, or hired someone without a proper background check . Many liability policies covering child care facilities exclude claims alleging physical abuse or molestation. Fortunately, some insurers offer abuse and molestation coverage via an endorsement for an additional premium.
Abuse and molestation endorsements vary widely. Some cover sexual abuse and molestation but not other types of abuse. Some provide no coverage for the alleged perpetrator even if the allegations are false. When shopping for molestation coverage, providers should choose an endorsement that affords defense coverage for the perpetrator until the allegations are proven. Defense costs should be covered in addition to (not within) the policy limits.
Errors and Omissions Liability
Child care providers may be sued for injuries they allegedly caused by failing to provide the level of service the plaintiff expected. For instance, let’s say a provider promises in its sales brochure that all children will learn their ABCs within their first year at the facility. A parent sues the provider because her child hasn't learned the alphabet after 18 months in the provider's care and the child wasn't accepted to a prestigious preschool. Errors and omissions liability insurance covers such suits. This coverage may be written separately or added to a liability or package policy.
Errors and omissions insurance is usually written on claims-made forms.
A commercial umbrella policy affords extra coverage when the limits on the primary liability policy have been used up in the payment of claims. Child care providers should consider this coverage since claims arising from injuries can be very costly.
Commercial Auto Insurance
A child care facility needs auto liability insurance to cover claims arising from accidents involving autos used on behalf of the business. Providers should not rely on their personal auto policy to cover claims against the business. Many insurers won't cover claims against business entities (other than sole proprietorships) under a personal policy. Moreover, a personal policy may not provide sufficient limits for a business.
If a child care provider's employees or volunteers use their personal vehicles on behalf of the business, the provider will need non-owned auto liability insurance. This coverage is often provided in conjunction with hired auto liability coverage for a minimal charge.
Two other coverages that child care facilities may need are workers’ compensation and commercial property. State laws determine whether businesses must purchase a workers’ compensation policy. Many states require this coverage if a business employs at least one worker.
Commercial property insurance protects a child care provider from losses caused by damage to or destruction of physical assets like buildings and play equipment. Property coverage is usually automatically included in a business owners policy.
National Database of Childcare Licensing Regulations. "Manual of Policies and Procedures, Community Care Licensing Division, Child Care Center: Division 12, Chapter 1," Accessed Nov. 27, 2019.
California Department of Social Services. "Do I Need a License?" Accessed Nov. 27, 2019.
California Legislative Information. "Health and Safety Code - HSC Division 2. Licensing Provisions [1200 - 1797.8] Chapter 3.6 Family Day Care Homes [1597.30 - 1597.622]," Accessed Nov. 27, 2019.
U.S. Small Business Administration. "How to Start a Quality Child Care Business," Accessed Nov. 27, 2019.
Insureon. "General Liability Insurance," Accessed Nov. 27, 2019.
Information Insurance Institute. "Commercial General Liability Insurance," Accessed Nov. 27, 2019.
Great American Insurance Group. "Abuse or Molestation," Accessed Nov. 27, 2019.
Insureon. "Errors and Omissions Insurance," Accessed Nov. 27, 2019.
Insurance Information Institute. "What Is an Umbrella Liability Policy?" Accessed Nov. 2019.
Travelers. "Commercial Auto Insurance," Accessed Nov. 27, 2019.
Insureon. "Hired & Non-Owned Auto Insurance," Accessed Nov. 27, 2019.
Geico. "Workers' Compensation Insurance," Accessed Nov. 27. 2019.
Louisiana Department of Insurance. "Small Business Insurance," Accessed Nov. 27, 2019.