My recent webinar “When Disaster Strikes: Protecting Your Family Child Care Business” covered three areas to help providers cope with a natural disaster:
- How to claim expenses associated with damage to your property
- How to purchase adequate insurance to protect your business
- How to plan ahead to reduce the financial disruption of future emergencies
The webinar was sponsored by Child Care Aware of America and the National Association for Family Child Care. I’ve also written two articles about disaster preparedness:
Participants at the webinar asked a series of questions. Here are my answers.
Q: Do you recommend that I buy life insurance?
A: It depends. If you die and someone else will suffer financially as a result, it makes sense to purchase life insurance. So, if you have children and your spouse relies on your income, then life insurance makes sense.
Q: If a child care provider is an exempt provider, can they get professional liability insurance?
A: Probably not. Most liability insurance companies will only insure you if you meet the highest standards of regulation for your state. If you must be licensed in your state and you are not, it’s unlikely you’ll be able to get this insurance.
Q: Is it a good idea to purchase extra insurance above liability insurance to cover my business materials?
A: Professional business liability insurance primarily covers lawsuits for injuries suffered by children or their parents. To get covered for damage to your property, you need business property insurance. You can get this coverage as a separate insurance policy, or as an insurance rider to your homeowners insurance policy.
Q: Do I recommend any insurance company?
A: No. I’ve create an insurance directory on my website: where I’ve listed companies and agents that offer insurance for family child care providers. I have not screened these companies nor do I recommend any particular company. Policies can vary a lot. When you see the directory you will also see a checklist: 10 Questions to Ask Before Purchasing Business Liability Insurance. Use this checklist to help guide you to choosing the best policy for you.
Q: Do parents need your insurance information when their child starts care?
A: Some states require providers to inform parents if they have business liability insurance or not. Other than this, you are not required to share information about your insurance coverage. I think it’s a good idea to tell parents you do have business liability insurance, but not to reveal any specifics about your coverage.
Q: What is umbrella insurance?
A: Umbrella insurance is an inexpensive way to increase the coverage limits on your homeowners and car insurance. However, some policies only increase the coverage limits for personal insurance, not business insurance. For example, let’s say you bought an umbrella policy that raised the coverage limits on your homeowners insurance by $1 million dollars. If your homeowners policy only covers you if you care for four or fewer children and you are caring for five children, the umbrella policy may not give you this additional coverage. Ask your umbrella insurance agent if the policy covers risks associated with your business.
Q: I’m having trouble finding auto insurance in my state. What should I do?
A: Check my insurance directory. Ask an independent insurance agent to find a policy for you. Contact your state insurance commissioner’s office for help.
Q: Why do I need to tell my car insurance agent that I’m using my car for food shopping, going to trainings, etc. if I never transport children?
A: Because you want to be sure that if there is an accident during such trips your insurance will cover you. Insurance companies could deny your claim if you are using your car on a regular basis for your business, even if you don’t transport children. Talk to your agent and ask if you are covered for all trips you take that involve your business. Get it in writing!
Q: I was told that not all insurance companies will cover allegations of child abuse. Is that true?
A: True. Business liability insurance policies can vary widely.
Q: Is there a recommended minimum amount of business liability insurance coverage child care providers should have?
A: I recommend getting at least $1 million per occurrence coverage (for each incident) and $2-3 million per aggregate (the maximum amount the policy will pay out in a year). The difference in cost between the minimum coverage and these numbers is probably less than $100 a year.
Q: Does an S Corporation need to follow the same rules?
A: The main reason family child care providers consider incorporating their business is to reduce the risk of personal liability. As a general rule, I don’t recommend incorporating because of the numerous negative aspects (cost, loss of deduction, additional record keeping). Incorporating is no substitute for purchasing adequate insurance to protect your property and your business.
Q: Why do you not recommend that providers incorporate their business?
A: Because for the vast majority of providers it’s not necessary to operate other than as a sole proprietor (self employed). It costs money to incorporate and there are annual filing fees. You must keep your business and personal records completely separate and not commingle funds. You will lose the ability to deduct some of your house expenses. You will have to do additional record keeping. You may not get the personal liability protection you expect. Before incorporating I strongly recommend that providers consult with both an attorney and tax preparer to understand the consequences of this decision.
Q: Will some home owners insurance companies drop you if they find out you are running a daycare?
A: It can happen. However, this is not a reason to keep your head in the sand and hope they don’t find out. You want to talk to your insurance agent to ensure that your policy covers you. Get it in writing. If you are afraid of getting cancelled, call a different agent from the same company and ask if their policy covers family child care providers.
Q: Is there a minimum loss I must suffer before I can claim a casualty loss? For example, what if a child rips a book, cuts the drapes, breaks a chair or destroys a toy over the course of a few weeks?
A: A casualty loss is a specific type of loss that has special rules about how to claim them as personal and business expenses. A casualty loss is damage suffered by a natural disaster, vandalism or theft. It’s not damage caused by a child in your program. You can still deduct the cost of repairing items damaged by children. See my article: “What To Do When Children or Parents Damage Your Property.”
Q: How much of my business liability insurance premiums are deductible? Can I deduct a portion of the insurance deductible I pay when I make a claim?
A: You can deduct 100% of your business liability insurance premiums. You can deduct the business portion of insurance deductibles for items used in your business.
Q: If a parent signs an animal awareness on premises, would our insurance cover me if there is a bite or injury?
A: It depends. If your insurance policy specifically excludes coverage for dog bites, then it won’t matter what the parent signs – you won’t be covered. Talk to your insurance agent about any animals you have and whether your policy will cover you.
Q: Are terrible rain storms and snow storms considered a “disaster”? Let’s say my roof caves in or there are leaks in my basement.
A: Yes, this is a disaster and damages would be considered a casualty loss.
Tom Copeland – www.tomcopelandblog.com
For more information, see my book Family Child Care Legal & Insurance Guide