A family child care provider once asked me, “Should I reduce the cost of my business liability insurance policy by reducing the limits of my coverage? I’m looking for ways to cut my expenses during this recession.”
While it’s always a good idea to look for ways to cut expenses this is not a good idea. Here is why.
Business liability insurance protects you against accidents and lawsuits against your business. It has two types of coverage limits: an “occurrence” limit and an “aggregate” limit. The occurrence limit is the maximum amount the insurance policy will pay for all injured parties as the result of one incident. For example, if two children are injured when one child falls on another child, this is considered one occurrence.
The aggregate limit is the maximum amount the insurance policy will pay for the life of the policy (usually for one year).
You can buy occurrence and aggregate coverage that can vary from about $300,000 – $3,000,000.
How much will you save if you try to reduce your coverage?
I called an insurance company offering business liability insurance in Minnesota. Their policy covers 12 children, offers $1,000,000 per occurrence and $3,000,000 aggregate coverage limits, includes sexual abuse and professional liability protection, as well as $10,000 of medical coverage. It costs $544 a year.
This amount of coverage is ideal. If a provider with this policy wanted to lower her coverage to $500,000 per occurrence and $1,000,000 aggregate her cost would be reduced to $486. If she lowers it further to $300,000 per occurrence and $600,000 aggregate, her cost would be reduced to $445.
The first drop in coverage would save $58 a year. To drop to the lowest coverage would save $99 a year, or $8.25 a month! To give up over 2.5 million dollars in aggregate coverage for less than $100 is a big mistake. This is not worth doing! The cost of such insurance may be higher or lower in your state, but the difference between higher coverage limits and lower coverage limits is still likely to be very small.
Although no one likes to pay for business liability insurance, you should consider this one of the baseline costs of doing business. Many insurance companies have payment plans that allow you to pay on a monthly or quarterly basis. The $544 a year policy would cost $45.33 per month.
Business liability insurance can give you peace of mind. It is not a place where you want to look to reduce your expenses.
Check out an family child care insurance directory.
Image credit: upstate.edu
For more information, see my book Family Child Care Legal and Insurance Guide.