As a family child care provider, you face multiple and unusual risks. It is extremely important to protect yourself.
The State of New York generally does not require nor mandate business insurance for family childcare providers. Consequently, many providers tend to view it as an unnecessary cash outlay.
Even if a provider forms a corporation or an LLC, in order to shield personal assets from business liabilities, he/she still risks losing his/her business. Furthermore, small tightly held businesses, which can have a greater difficulty of distinguishing between business and personal, are at greater risk of a court overruling their personal liability protections; particularly in egregious circumstances (negligence or fraud).
Persons who may not own property or have other assets would also benefit from purchasing insurance. In some states, up to 50% of a spouse’s wage may be garnished. If a provider leaves the childcare business and takes another job, his/her wages may be garnished. A provider may also be required to sell some assets, such as a second car, and personal items
Note: Liability waivers can’t prevent parents from suing a childcare provider and judges won’t enforce them. Also, the injured child could sue the provider later.
A provider should visit his/her state’s office of insurance. State governments regulate the insurance industry and provide a number of services to consumers and small business owners.
It is shortsighted to think that having few personal assets won’t require the purchase of business liability insurance or that this will shield a provider from a lawsuit. Depending on the state a provider lives in, he/she can still be in deep financial trouble, even if the provider doesn’t have much money to his/her name.
Should a court award a parent or some other business-related person a significant sum of that a provider is unable to pay, they may be able to put a lien on the provider’s assets (such as the home), depending on the state’s laws.
Usually, a court judgment against an individual will last for ten years. Liens against a home can have detrimental long term effects. Any inheritance received may be taken.
Tom Copeland, Family Child Care Business and Tax Specialist recommends, “that you get as much insurance as you can afford. Ideally, you should have $1 million per occurrence (maximum payout for each incident) and $3 million aggregate (maximum payout for the life of the policy). You want to ensure that your policy provides coverage for professional liability, child sexual abuse, and medical expenses.”
A provider can deduct 100% of this cost as a business expense.
Note: Liability waivers can’t prevent parents from suing a provider and judges won’t enforce them. Also, the injured child could sue a provider later.
Resources and links:
- FCF – Business Liability Insurance – Don’t Be in Business Without It.pdf
The issue of insurance for a childcare business applies whether the provider is a homeowner or a renter.
Homeowners’ insurance policies do not cover home-based business. Some explicitly exclude family child care businesses.
A home-based family child care provider, most likely, would need to adjust the homeowner’s policy.
It is recommended that a provider immediately review the home insurance policy as some homeowner’s insurance is limited or avoided entirely if a business operated from the home. If this is the case, it is strongly recommended that the provider enhance the insurance policy to include business use of the home and business-related claims.
The two most common and generally useful types of business insurance policies are property insurance and liability insurance. Yet, as a family childcare provider, the owner faces multiple and unusual risks; children are highly active, they are learning how to self-regulate and someone may believe there is a case of maltreatment or abuse. These require the proper insurance coverage.
The elements of an ideal home-based child care provider policy are: property insurance (business), professional liability, child abuse, legal defense in excess of policy limits, accidental medical, accidents away from home, and landlord as an additional insured (where needed.) Ideally, it would also include: legal representation for any administrative hearings as well as legal defense in excess of policy limits (ensuring that legal expenses, should they arise, don’t erode your policy limits.)
It is recommended that a childcare business (regardless of business structure) have the following:
Property insurance covers a business for damage or loss to business property. A good property insurance policy should cover:
- Property fixtures, such as lighting systems or carpeting
- Equipment and machinery
- Office furniture
- Computers and accessories (monitors, CD-ROM drives, modems, printers)
- Furniture in the child care area, supplies, and so on.
A homeowners’ policy, typically, is set up to protect the owner if someone at the home for a non-business purpose sues him/her. Homeowners’ policies, typically, do not cover injuries to a business associate, employee, customer, or delivery person who is hurt on the property. A homeowners’ insurance provider may offer the option to cover these risks via a rider to the homeowners’ policy or via a commercial general liability policy.
Also, a provider should think about the extent of his/her general liability coverage, should he/she accidentally injure someone or damage property while away from home on business. The provider may need a rider or special policy to cover this risk.
Coverage for accidents involving medical expenses, whether they occur in the home or away from home on business (ex. Playground), will be provided under accident medical policies or under the medical payments portion of the general liability policy. It is important to ensure that accidents involving medical expenses are covered regardless of where they occur (either in the home or away from home).
Liability waivers can’t prevent parents from suing a provider and judges won’t enforce them. Also, the injured child could sue the provider later.
Anyone who renders professional services should consider professional liability insurance. An example of an occurrence that would be covered via this segment of your policy would be “failure to supervise.” This coverage should apply to the family childcare provider, as well as all assistants, substitutes, volunteers as well as all residents of the family childcare site who are over the age of 18.
Child Abuse Insurance
Child abuse insurance may be provided for separately. Once again, this coverage should apply to the family childcare provider as well as all assistants, substitutes, volunteers as well as all residents of the family child care site who are over the age of 18.
Legal Representation Insurance
It would be wise to have legal representation for any administrative hearings. Since legal representation can be very costly, it is highly recommended that coverage of legal defense be in excess of policy limits (ensuring that legal expenses, should they arise, don’t erode your policy limits.)
If a provider uses a personal car to transport children who are enrolled in his/her program (while they are being cared for them versus while they are on a social visit), he/she will need automobile liability insurance. The provider must ensure that his/her car insurance covers injuries while on business errands. He/she may need to switch companies to find insurance that will cover business-related driving.
If a provider has employees who use their own cars for work errands or deliveries, he/she should consider getting special insurance (called employers’ non-owned automobile liability insurance).
Other Insurance Policies for You to Consider
- Food safety will be provided under the product liability portion of a policy.
- If a provider has employees there are state laws regarding the coverage he/she must provide (workers’ compensation, federal unemployment, and state unemployment. In New York State, employers are also mandated to provide disability insurance.) See more about employees coverage here
Renters’ insurance policies, also, do not cover home-based businesses. Therefore, the same recommendations would be made to renters.
This may differ with regards to liability insurance. A PROVIDER NEEDS TO CONFIRM LIABILITY COVERAGE AS A RENTER (NORMALLY/NYC)
The National Association for Family Child Care suggests for coverage of $1 million per occurrence and $2 million aggregate (total coverage for the life of the policy).
A license is the basic requirement needed to provide childcare services. In addition to this, most insurance companies will have their own unique requirements. Some require a fenced play area; others will make issue with household pets. A provider should try to secure the least restrictive policy. Some companies are more stringent than others. This is evidence of their efforts to minimize their risk in providing coverage based on what they believe to be relevant to the outcome of any lawsuits that may be filed.
Before purchasing any insurance policy, read it carefully to determine what types of damage are covered.
Resources and links:
* Professional liability coverage for failure to adequately supervise children
* Child/sexual abuse coverage that covers the provider, his/her family members, and employees
* Accident medical coverage for injuries suffered by the children in your care
* Legal defense if you are accused of child abuse/neglect and risk the loss of your license
* Coverage for accidents when you are away from home with children
How much insurance coverage should you buy? As much as you can afford! Some insurance is better than no insurance.
Insurance policies will set two coverage limits: “per occurrence” (the amount of coverage for one incident) and “aggregate” (the maximum amount the policy will pay).
Note: This is not an exhaustive list of questions.
Resource and links:
The Affordable Care Act (ACA) mandates that employers with 50 or more employees provide health insurance to their staff. Family child care providers who have employees are unlikely to fit these criteria and are obligated to provide health insurance.
Nonetheless, family child care providers are responsible for obtaining health insurance for themselves and each member of their family.
Persons who meet income eligibility requirements are able to obtain health insurance via the Health Insurance Market Place.
A provider or any family member covered by Medicaid does not need to take any additional steps because this means they have health insurance. The mission of the law is to ensure that all persons have health insurance.
Life insurance has long been a part of estate planning in the United States. Although life insurance does not need to be a part of everyone’s estate plan, it can be useful, especially for parents of young children and those who support a spouse or a disabled adult or child.
In addition, supporting dependents, life insurance can help provide immediate cash at death. Insurance proceeds are a handy source of cash to pay the deceased’s debts, funeral expenses, and income or estate taxes.
People who do not have minor children or financially strapped dependents may not need life insurance. Below are questions that can help a provider evaluate his/her life insurance needs. Should a provider decide to purchase insurance, he/she should know exactly why the purchase is being made and choose the best type of policy for his/her needs. And, of course, he/she should buy no more than you need.
To determine whether it makes sense over the long-term to buy insurance that provides financial help for family members, a provider should consider these questions:
- How many people depend on the provider’s earning capacity? If the answer is “none,” then the provider probably doesn’t need life insurance.
- How much money would the provider’s dependents need for living expenses? One way to determine this amount is to look at the earned income that the provider brings to his/her dependents on a regular basis. From that amount, subtract the worth of property they would inherit from the provider and any amounts that will be available from public sources or private insurance plans that already provide coverage. Social Security survivors and dependents benefits will probably be available, and the provider may also be covered by union or management pensions, or a group life insurance plan. Also, a provider will want to subtract any other likely sources of income, such as the help reasonably affluent grandparents would provide for his/her children in case of disaster.
- How long would it take for the provider’s dependents to become self-sufficient? If the provider’s children are almost out of college, they may not need much additional income. If they’re younger, then the dependent spouses caring for young children can usually return to work at some point, and some kids may get at least partial scholarships.
Once the provider performs this exercise, he/she may find that the dependents may need little additional income from life insurance. But if he/she has young children, then it makes sense to buy an affordable amount of life insurance. For more information, see “Using Life Insurance to Provide for Your Children.”
Many enterprises select a limited liability company, or LLC, as their form of business structure. LLCs can offer providers the tax advantages of a partnership — no corporate double taxation — with the limited liability of a corporation. For the most part, a provider’s personal assets are off-limits under an LLC, and he/she can only be held liable for the debts and obligations of the business itself. A number of states require health care providers to buy malpractice insurance, also known as professional liability insurance, and many health care providers are organized as LLCs. However, for the most part, an LLC is free to choose whether to cover different risks to the business by purchasing various types of insurance.
If a provider hires employees, his/her LLC is required under state law to pay workers compensation insurance to cover employees who might be injured on the job. The provider will pay unemployment insurance taxes as well. In a handful of states, an LLC must purchase a disability insurance policy.