Purchasing insurance can be a confusing and frustrating process for new daycare business owners. You want to make sure your business and those in your care are covered in the case of an accident or lawsuit, but you also don’t want to be paying for coverage you don’t need.
In this article, we will go over different types of coverage, cost of coverage, and factors that will affect how much your insurance will cost. The types of coverage we will go over are:
- General liability
- Property/premises liability
- Professional liability
- Abuse and molestation liability
- Corporal punishment liability
- Commercial auto insurance
- Workers compensation insurance
- Umbrella liability
1. Types of coverage
When purchasing insurance for your daycare there are a number of different policy options to choose from. Some are required, such as general liability, some are not but still a good idea to have, such as professional liability.
Understanding what is covered by each type of insurance will help you choose which combination is best for your daycare center. Each state has different requirements for what daycare centers are required to carry, make sure you check your state’s laws or talk to a local insurance agent to make sure you are in compliance.
General liability insurance is required in most states and is the foundation of any daycare business insurance coverage. General liability insurance covers the following:
- Bodily injury/medical care
- Sickness, pain and suffering, and death
- Damage to other peoples property
- Reputational harm
- Monetary amounts owed to other parties in the case of a lawsuit
- Cost of legal defense
Some examples of when you might need general liability coverage:
- A pipe bursts in the walls of the building that you rent for your daycare and causes damage to floors and walls.
- A child breaks their arm while playing on the swing-set.
- A competitor claims you defamed them in your most recent ad.
General liability policies can differ in what they cover. Employee coverage, legal bills, and third-party medical bills are all things that some cover and some don’t, so make sure to do your research for your specific policy.
Property liability, sometimes called premises liability, is insurance that covers any accidents or injury that occurs on your property but that isn’t covered by your general liability insurance.
This insurance also covers your daycare business’ assets, such as your building, equipment, and supplies.
Sometimes general liability coverage will extend into this category, so again, make sure you look into the specifics about your policy or talk to a local agent. Claims for this type of insurance can be things like:
- A parent slips on the sidewalk and injures their ankle
- A child spills apple juice on your projector and it breaks
- Vandalism on your building
Professional liability insurance, sometimes called errors and omissions insurance, covers you in case there is a claim brought against you or an employee that you didn’t do your job properly which caused harm to a child. This will cover the costs for your legal defense, court costs, and settlements or judgments against your daycare business.
Professional errors, omissions, and negligence are not covered by your general liability policy, so you will need to purchase separate coverage for these items.
Examples of when you would need professional liability insurance:
- A parent alleges you neglected their child which lead to developmental delays
- A parent alleges you fed their child a food that their child was allergic to
- A parent alleges their child was harmed because you weren’t providing adequate supervision at recess
Some daycare owners make the mistake of thinking nothing bad will happen at their daycare center because they have well-trained employees and they genuinely care about the children they are teaching. Even the best daycare centers can make mistakes, don’t leave yourself vulnerable to a lawsuit by passing on professional liability insurance.
Abuse and molestation liability
Unfortunately, as a daycare owner, you have to be aware and protected from accusations of abuse and sexual misconduct. No daycare owner thinks that their employees would do such a thing, but it has happened and you need to be covered in the case that it does.
These occurrences may be rare, but when they happen they could be the end of your daycare business. This is where abuse and molestation liability insurance comes in and protects you from these allegations.
Sometimes abuse and liability insurance is covered under your general or professional liability coverage, but you can always add a separate policy to ensure adequate coverage.
Corporal punishment liability
Another coverage that you hope to never have to use is corporal punishment liability. This covers you in the case that an employee strikes a child or administers corporal punishment.
As with abuse and molestation liability coverage, corporal punishment liability may be covered under your general or professional liability, so read into your policy to make sure you are adequately covered and also not double covered.
Commercial auto insurance
If you use a car, truck, or van for your daycare business, you will need to purchase commercial auto insurance to cover damages and lawsuits in case of an accident. Most states require business owners to carry at least liability coverage, but as a daycare, you may need to purchase more.
Some of these coverages in addition to liability include:
- Comprehensive – Pays for damages to your car that aren’t from an accident
- Uninsured and underinsured – Pays for damages and medical bills if the other driver is at fault but doesn’t have adequate coverage
- Collision – Pays for damages to your vehicle from an accident
- Medical – Pays for injuries sustained by you or your passengers
Even if you drive your personal vehicle, you may need to purchase commercial auto insurance. If you use your car for business purposes, or have students ride in your car at any time, your personal auto insurance typically won’t cover accidents during these activities.
Workers compensation insurance
Workers compensation will cover you in the case of an employee getting injured or sick while on the job. This insurance covers things such as medical bills, loss of wages, and pain and suffering.
Most states require daycare centers to carry this type of insurance even if you just have a single employee after yourself.
Some examples of workers compensation claims:
- An employee slips on an icy part of the playground and sprains their ankle
- An employee gets bitten by a child and it gets infected
- An employee develops a severe illness that they were exposed to at your facility
Umbrella liability insurance covers you in case a claim exceeds the limits on one of your policies. Umbrella liability insurance can be useful for:
- Fear of large lawsuits – If your general liability policy is for $200,000 but you get sued for $400,000, your umbrella policy will pick up the remaining $200,000
- Renting a large facility – This will help if commercial landlords require higher liability limits
- Hiring extra employees – This will extend the limits for your workers compensation policy
2. Cost of coverage
In a perfect world, you would be covered for every situation and have adequate coverage for each policy. Unfortunately, as a small business, sometimes you have to make tough decisions to keep your daycare financially viable.
In general, most daycare facilities pay $250-$500 per month for insurance.
To help you get a better understanding of what the costs will be for your specific situation, we created a table with all the costs associated with each kind of coverage.
|Policy||Typical Premium Amount||Typical Deductible||Coverage Amounts|
|General liability||$250-$650||$0||$1 million per claim/$million aggregate|
|Professional liability||$500-$1200||$500-$1,000||$1 million aggregate|
|Abuse & molestation liability||Included with general or professional liability||$5-$10 per child||$25,000-$50,000|
|Corporal punishment liability||$100-$200||$500-$1,000||$25,000-$50,000|
|Commercial auto insurance||$800-$3,000||$500-$1,000||$100,000-$1 million|
|Umbrella liability||$150-$300||$0-$1,000||$1 million-$2 million|
3. Factors that change insurance cost
To try and get a more accurate estimate of what your insurance rates will be, consider these factors and adjust the rates for your daycares situation.
Size of your daycare
With more employees and more children at your facility, insurance costs will likely increase along with it. Having more employees will increase your general liability, professional liability, abuse and molestation, corporal punishment liability, and workers compensation rates.
Make sure you account for these costs when you are deciding how large to make your daycare.
How much you make will also affect your insurance premiums. Insurance companies typically charge more for more profitable daycares because they figure they have more to lose and are more likely to get sued.
If you or your daycare have a history of filing a lot of claims, your insurer will likely hit you with higher premiums. There is no good way of getting around this but you can talk with your insurance provider to see if they will work with you on this.
Just like with any other insurance, you can opt for higher deductibles to lower your premiums, however, this means that you will pay more when you have to file a claim.
If you choose to have higher coverage limits you will have higher premiums because the insurance provider could potentially pay more in the event of a claim.
Do I need property insurance if I am operating out of my home?
The short answer is yes. Your general liability might include property insurance, but your homeowner’s insurance does not cover accidents related to your business.
Even if you are running a small daycare out of your home you will at least need general liability insurance, and it is a good idea to purchase property insurance if it isn’t included in your general liability plan.
If my state doesn’t require a certain type of insurance, should I still get it?
This is up to you as a business owner, but our recommendation would be yes.
Insurance is used to protect you and your business in the situation that something unexpected happens. If you don’t have insurance you are leaving yourself and your business exposed to the risks that happen on a daily basis.
If you can’t afford adequate insurance you should look into getting extra funding or changing the size of your daycare.
Please note: This blog post is for educational purposes only and does not constitute legal advice. Please consult a legal expert to address your specific needs.
Once you have decided on your insurance, you will be ready with our startup course and documents.