You can’t prevent natural disasters and some emergencies, but having the proper insurance can significantly reduce the costs associated with one.
Insurance is a significant tool that helps protect family child care providers from natural disasters, accidents, vandalism, theft and other emergencies. It can help to replace damaged property (home, household items, car), pay for injuries to children, pay for loss of business income, and defend against lawsuits from parents.
Unfortunately, many providers do not have the proper insurance to protect the children in their care, their own property and family. In some cases, providers who do have homeowners and car insurance do not realize that their policies don’t adequately cover them once they start caring for children.
You don’t want to find out that your insurance is not protecting you until there is an emergency and you need help. You want to prepare for emergencies before they happen. Here’s a summary of four types of insurance policies you need as a family child care provider.
- Homeowner’s Insurance
Homeowners insurance is personal, not business, insurance. It protects your personal property. Your homeowner’s insurance policy covers your home (repair and replacement), your property (furniture, appliances, clothing, all personal items), and some personal liability protection (medical expenses and lawsuits when a neighbor falls off your deck). It will also cover you for things such as a hotel, food, and other costs if your home is damaged and you must temporarily live elsewhere.
You may be surprised to know that many homeowner’s insurance policies may restrict (or even deny) coverage for family child care providers. Some policies limit the number of children covered, or offer no coverage at all if you are a provider. No homeowner’s insurance policy will cover you in the event of a flood. Such coverage must be obtained under a separate flood insurance policy.
Most policies limit the amount of coverage for business property, usually to a few thousand dollars. Since nearly everything in your home is used by your business, your policy may no longer fully cover your furniture, appliances, and everything else you own.
Therefore, you should not assume that your homeowner’s insurance policy covers your house or its contents. Contact your homeowner’s insurance agent and tell him/her that you are a family child care provider and how many children are in your care. Explain that you use essentially everything in your home for your business. Ask these two questions:
- “Is my home covered if it’s damaged or destroyed?”
- “Are the contents of my home covered if they are damaged or destroyed?”
If your insurance agent says “yes,” ask him/her to put it in writing. If you don’t have it in writing, you probably aren’t covered. If the answer is “no,” then you should find another insurance company that will insure you.
- Business Property Insurance
If your insurance agent says that your home is covered but your property (furniture, appliances, etc.) is not, ask about purchasing a business property insurance policy to cover you. It should not cost more than a few hundred dollars a year, depending on the amount of coverage you purchase. You may also be able to get this coverage through your professional business liability insurance policy.
You should also consider getting “business income and extra expense” coverage as part of your business property insurance policy. If an emergency forces you to close your business for a period of time, you will be losing income. Or, you may have extra expenses if you move your business temporarily to another location (rent, etc.) or pay employees while you are closed. Coverage for this is very inexpensive.
- Commercial Business Liability Insurance
When an emergency happens, you’ll want to protect your business, as well as your property. Commercial business liability insurance may cover you for expenses you may incur as a result of an emergency.
If any of the children in your care are injured because of a natural disaster or other emergency, you’ll want to purchase a commercial business liability insurance to cover both medical expenses of the children and any potential lawsuits. Your homeowner’s insurance policy is unlikely to cover this.
Not all business liability insurance policies provide equal coverage. To help you understand the differences between policies, use the checklist, “Ten Questions to Ask Before You Purchase Family Child Care Business Liability Insurance.”
- Vehicle Insurance
Vehicle insurance covers you when you or the children in your care are in a vehicle. If you are in a car with children when an emergency occurs, you want to be sure you are covered.
State law requires everyone to have insurance for their vehicle. Such insurance covers you for property damage and bodily injury while in the vehicle. However, family child care providers who use their vehicle in their business may or may not be covered by their personal automobile insurance policy.
To be sure that your personal vehicle insurance will cover you in an emergency, talk to your insurance agent and explain all the circumstances in which you use your vehicle for business purposes. This may include transporting children, going to the bank, library, training classes, grocery stores and so on. You want the insurance agent to put in writing that you are covered in all of these situations, including transporting children in an emergency.
Insurance Is a Serious Matter
Not having adequate homeowners, business property, commercial business liability or vehicle insurance can have serious consequences:
* One year, hail damaged a provider’s roof in Minnesota, but her homeowner’s insurance wouldn’t cover the replacement cost once they learned she was an in-home child care provider. This provider had failed to notify her insurance agent to make sure her policy would cover her as a child care provider.
* In another case, a tornado in southern Minnesota destroyed a provider’s home and everything in it. She received only $2,000 for all of her possessions because she wasn’t adequately insured for her business property.
* Parents have successfully sued providers for tens of thousands of dollars for injuries suffered by children while in their care.
* On another occasion, a provider was in a van with daycare children when it caught fire and several of the children died. Because she didn’t have adequate vehicle insurance, she has hundreds of thousands of dollars of claims hanging over her head.
You can protect yourself from these financial losses by purchasing adequate insurance. Here’s an insurance directory listing of insurance agencies that offer policies that cover providers.
The Tax Consequences of Losses Due to Emergencies
If your property is damage, destroyed or lost as a result of a natural disaster, you have suffered a casualty loss. When this happens, you will want to file a claim with your insurance agent.
Expenses that are covered by your insurance are not deductible. However, any expense you pay (deductibles and out of pocket expenses) can be partly deducted as a business expense. This can include cleanup expenses, minor repairs, temporary housing, rental car, replacing spoiled food, boarding up your home or sandbagging your property in preparation for a tornado, hurricane, or flood.
You cannot deduct the loss of income if you have to close your business because of an emergency. You will simply report less income on your tax return. For more information, see the article, “Deducting Losses from a Natural Disaster.”
What Insurance Costs Are Deductible?
No one likes buying insurance, but in many cases, you can deduct part or all of the cost as a business expense.
- Homeowner’s insurance (or renter’s property insurance): You can deduct your Time-Space percentage of this expense.
- Commercial business liability insurance: You can deduct 100% of this expense.
- Vehicle insurance: You can only deduct the business use percentage of this insurance if you use the actual expenses method of claiming vehicle expenses. If you use the standard mileage rate to claim vehicle expenses, you cannot deduct this insurance.
Insurance is a key component of a comprehensive plan to prepare for emergencies. Buying insurance to adequately protect the children in your care, your family and your business is one of the costs associated with being a professional family child care provider. You owe it to everyone you love to do so.
Thanks to Elizabeth Downs (New England Insurance Services) and Debe Marofsky (Affiliated Insurance Services).
This article was produced for Child Care America. See the full article here.
See also my article: “Reducing the Financial Toll of Emergencies.”
Tom Copeland – www.tomcopelandblog.com
For more information, see my book Family Child Care Legal and Insurance Guide.