Last week a family child care provider called me in tears because she had lost her license.
Her dog bit a child in her program (with no serious injury) when her back was turned for ten seconds. The police investigator concluded that it was an accident.
But her licensor suspended her license anyway and the provider is now appealing her decision. Since this is a serious matter, I recommended that she hire an attorney to defend her. I asked her if she had business liability insurance because some insurance policies provide money for a lawyer in these situations.
She didn’t have the insurance. She is single, cares only for subsidized children, has no money other than a $90 a month pension and can’t afford to hire a lawyer. I referred her to some organizations that might be able to provide free legal help.
Over the years I have heard from many other providers in similar situations who face the loss of their license, paying thousands of dollars for a child’s medical expenses, or a lawsuit from parents. See my article “The Real Risks in Family Child Care.” Note: not all policies will pay for legal defense to appeal a negative licensing action.
Business Liability Insurance
These are all situations where providers who have business liability insurance could get help and not have to worry about paying out money to parents.
But, it’s a tragedy that a majority of family child care providers do not have business liability insurance.
Perhaps the biggest reason why child care providers don’t have this insurance is because they don’t feel they can afford the cost.
What does this insurance cost? $400, $500, $1,000, or more per year?
The cost of business liability insurance will vary depending on three main factors: the state and town you live in, the amount and type of coverage you purchase, and the number of children in your care.
I contacted several insurance agents around the country and here are some examples of annual policy costs:
* Wisconsin – $1 million per occurrence/$2 million aggregate; $10,000 medical, child sexual abuse and professional liability coverage; 12 children: $585
* Pennsylvania – $1 million per occurrence/$3 million aggregate; $5,000 medical, professional liability, $300,000 child sexual abuse; 8 children: $680; for 14 children $945
* Indiana – $1 million per occurrence/$3 million aggregate; $10,000 medical; $1 million child sexual abuse; $1 million professional liability; $20,000 business property, 12 children: $653
* Washington – $1 million per occurrence/$3 million aggregate, professional liability, $50,000 child sexual abuse; $5,000 medical; 12 children: $560
* Minnesota – $500,000/$1 million; $500,000 child sexual abuse; $500,000 professional liability; $10,000 medical; dog and cat coverage; 12 children: $573
As you can see, the costs can vary. And it can be hard to compare policies when they offer different coverages. You should be choosing a policy based on what it coverage, not on its cost. You can expect that the more your policy covers the higher will be its cost.
For example, in California you can get a policy that covers $500,000 per occurrence/$500,000 aggregate and costs $426 for 8 children. If you doubled the coverage it would cost you only $152 more. That’s a small price to pay for an extra half million dollars of coverage! See my article, “When Trying to Save $8.25 a Month is a Mistake.”
I recommend that you get as much insurance as you can afford. Ideally, you should have $1 million per occurrence (maximum pay out for each incident) and $3 million aggregate (maximum pay out for the life of the policy). You also want coverage for professional liability, child sexual abuse, and medical expenses. See this article for a checklist of coverages.
Your homeowner’s insurance policy will not cover you for any accidents that happen while caring for children.
Paying for Insurance
I strongly believe that all child care providers should have business liability insurance. Paying for it is a cost of doing business. You can deduct 100% of this cost as a business expense. So, if you are in the 30% tax bracket and the policy costs $585, your actual cost after taxes is $410. That’s equal to $1.10 per day.
Many insurance companies will allow you to pay the premiums on a monthly or quarterly basis. Some providers pass on part of the premium costs to parents. If your policy cost $600 and you care for six children, you could ask parents to pay an extra $50 when the annual premium came due and this would reduce your cost to $300 ($210 after taxes).
Parents may be willing to help pay for this insurance because they know it will cover their medical costs if their child is every injured.
I’ve posted an insurance directory above where you can find a number of companies who offer insurance in your state.
Don’t let a few hundred dollars get in the way of protecting yourself and your business from financial diaster.
Thanks to the following insurance agents: Debe Marofsky, Affiliated Insurance; Don Morgan, Morgan Insurance; Beth Jones, First Choice Insurance Services; Kristi Olsen, Freisinger Insurance; and Jordan Silverman, DCI Insurance.
Tom Copeland – www.tomcopelandblog.com
Image credit: www.enhancedinsurance.com
For more information about business liability insurance, see my book Family Child Care Legal & Insurance Guide.