If you love kids, opening an in-home day care center may seem like a great option for making money. If you haven’t considered the liability risks of your new home business, though, you could end up dealing with something that's not child's play -- financial and legal trouble.
According to the National Association for Family Child Care, only one-fifth of licensed child care providers carry liability insurance. And that’s a mistake, experts say. Generally, even if you’re watching only a few children, your home insurance policy will not cover your at-home child care operation.
Here are some of the situations that, without insurance, could leave you crying like a baby:
Children’s injuries or death. No matter how careful you are, it’s always possible that one of the children under your care will get injured. A study published in the journal Pediatrics found that in 2007 alone, 32,000 children age 4 and under were treated in emergency rooms for injuries suffered in child care settings. More that half of those injuries happened on playgrounds.
Even more frightening, although less common, is the risk of a child’s death. Nationwide statistics aren't available, but at least 45 children died of non-illness conditionswhile in paid child care settings between 2007 and 2010 in just one state, Missouri.
If a child in your care becomes injured or dies, you may slapped with medical bills or even be charged with a crime.
Slip-and-falls. When your sidewalk is icy or improperly paved, or your floors are wet, children, parents and employees are at risk of falling and becoming injured. The National Safety Council recommends taking steps to reduce the chance of slip-and-falls, such as putting anti-skid tape in high-traffic areas and displaying “wet floor” signs when appropriate. Even with precautionary measures in place, it’s important to protect yourself if someone gets injured and files a lawsuit as a result of a fall on your property.
Abuse allegations. Anyone who provides unsupervised care for young children faces the risk of being accused of physical or sexual abuse. Although you may be innocent of the charges, even groundless allegations probably will force you to hire a defense attorney.
Joe Silverman, president of DC Insurance Services, which specializes in day care coverage, says that according to his company’s data, nearly one-third of all day care insurance claims are related to abuse allegations. “Historically, over 90 percent of those go away,” he says. Still, legal defense can cost tens of thousands of dollars.
Options for child care insurance
So what can you do to protect your business? Get a comprehensive insurance policy.
Depending on your insurer and your state, you may have several options when it comes to coverage for your in-home day care operation.
Some states require day care owners to carry business liability insurance, but that often doesn't apply to in-home businesses. In California, for instance, a provider may waive liability coverage in favor of a $300,000 bond or may have parents sign affidavits acknowledging that they’re aware the provider lacks liability coverage.
One in-home day care owner, writing on BabyCenter.com, claimed that her home insurance company told her she'd need to drop her policy because of the liability risk of her in-home day care, even if she bought a separate business policy. The remedy? Switch to a bigger insurer that could sell home and liability insurance to her.
Other BabyCenter members who provide in-home day care said they were able to add day care "riders" to their standard home insurance policies for a nominal cost -- roughly $100 a year. However, such policies restrict the number of children you may have in your care and typically exclude abuse-related claims, according to the National Network for Childcare.
Specialized day care insurance policies
Many in-home child care providers buy specialized day care insurance.
“An insurance agent who specializes in child care insurance can best determine what coverage options are needed to properly protectyour childcare operations,” says Michelle Buttchen, supervisor of NSI, a division of West Bend Insurance.
Her insurance recommendations include protection against risks such as general liability, professional liability, child abuse and molestation, child abduction and injuries caused by pets.
Rates for day care liability insurance vary from state to state. They're determined by the number of children a provider is licensed to care for, Silverman says.
Ellie Jones, who runs an in-home center in central Illinois, pays $490 a year for her policy.
“It covers abuse allegations, physical injuries, food spoilage and much more,” she says.“If something were to happen to my home and business, they would pay for our family to rent acomparablehome so that I could continue my business. If my reputation was tarnished due to false allegations, they would pay for advertising to attract new clients and clear my name.”
Although Nicole King wasn’t required to buy liability insurance when she opened her home-based center, Sweet Dreams Childcare in Pittsburgh, she bought insurance anyway. “I've seen enough things happen to others to know that you always cover your backside,” she says.
Her business insurance costs $385 a year. However, that coverage still leaves gaps.
“If I went to the post office or grocery store with my child-care children in my personal vehicle with a personal auto policy, I was not covered under the business liability policy," King says.
She bought a commercial auto liability policy to protect herself in such situations; that costs an extra $145 a month.
“I knew that if I planned on building this business into a legacy, I’d better protect it for the future,” King says.