Running a daycare or preschool involves more than just caring for children. It means managing risks that come with protecting young lives, your staff, and the facility itself. One unexpected injury or accident can lead to costly claims that threaten the business’s survival. That is why understanding the right insurance coverage is crucial for every childcare provider.

Liability insurance costs have surged sharply in recent years. In fact, 80% of early childhood educators reported increased premiums in 2024, with some facing hikes as high as $10,000 or more. This trend is reshaping how providers approach risk management and budgeting for insurance. Jonathan Pearce, President of Sugar ’n Spice Children’s Academy, highlighted a 64% increase in liability premiums within a single year, underscoring the urgency of this issue.

Childcare centers are responsible for the safety and well-being of children during critical developmental years. This responsibility brings unique risks. Accidents can happen despite the best precautions. A child might slip and fall, a staff member could be injured, or property damage might occur due to unforeseen events. Without proper insurance, these incidents can quickly become financial disasters.

Insurance protects daycare owners from lawsuits, medical claims, and property losses. It ensures that the business can continue operating even after costly incidents. Considering the U.S. child care market was valued at about $55 billion in 2021, the stakes are high for providers who want to maintain stability and trust with families.

Costs are a major concern. The average annual expense for full-time center-based preschool care reached around $9,600 in 2022, already a significant burden for many families. Rising insurance premiums add pressure on providers to balance affordability with comprehensive coverage. This dynamic can influence the quality and availability of childcare services in communities.

Moreover, the landscape of daycare and preschool insurance is continually evolving, reflecting changes in regulations, societal expectations, and emerging risks. For instance, the COVID-19 pandemic highlighted the need for coverage that specifically addresses health-related incidents, prompting many providers to seek policies that include pandemic-related liabilities. This shift not only underscores the importance of having robust insurance but also the necessity for daycare providers to stay informed about the latest trends and requirements in the insurance market.

Another critical aspect to consider is the peace of mind that insurance provides to both providers and parents. Knowing that a childcare center is adequately insured can significantly enhance a parent's confidence in the safety of the environment where they leave their children. This trust is essential for building long-term relationships with families and fostering a sense of community. In an industry where reputation is paramount, having the right insurance can be a key differentiator that helps a daycare center stand out in a competitive market.

Understanding the types of insurance essential for daycare and preschool operations helps providers make informed decisions. Here are the key coverages to consider:

General Liability Insurance

This coverage protects against claims related to bodily injury or property damage occurring on the premises. For example, if a child trips on a loose rug and breaks an arm, general liability insurance helps cover medical expenses and legal fees if a lawsuit arises.

Given the high risk of accidents in childcare settings, this insurance is fundamental. It also covers incidents involving visitors or vendors on-site. Without it, a single claim could jeopardize the entire business. Additionally, general liability insurance can also extend to cover claims made by parents or guardians for emotional distress or reputational harm, which can arise from various situations, such as an incident involving their child. This comprehensive coverage is a crucial safety net for any childcare provider, ensuring peace of mind while they focus on nurturing and educating children.

Professional Liability Insurance

Also known as errors and omissions insurance, this protects against claims of negligence or failure to provide adequate care. It covers situations where a parent alleges harm due to improper supervision or advice. This type of insurance is critical given the trust placed in childcare professionals.

Moreover, professional liability insurance can also cover legal costs associated with defending against such claims, even if the allegations are unfounded. This is particularly important in the childcare industry, where the stakes are high, and the emotional impact of claims can be significant. Providers should also consider the importance of maintaining proper documentation and communication with parents, as these practices can help mitigate risks and demonstrate a commitment to high standards of care.

Property Insurance

Daycare centers often operate in dedicated buildings or rented spaces. Property insurance covers damage to the facility and its contents caused by fire, theft, vandalism, or natural disasters. This ensures that repairs or replacements do not become an overwhelming financial burden.

In addition to standard property coverage, childcare providers may want to consider additional riders for specific equipment, such as playground structures or educational materials, which can be costly to replace. Furthermore, property insurance can also cover loss of income due to business interruption caused by a covered event, allowing providers to maintain financial stability while they recover from unforeseen incidents.

Workers’ Compensation Insurance

With approximately 1.3 million workers employed in the U.S. child care industry as of 2022, protecting staff is essential. Workers’ compensation covers medical costs and lost wages if an employee is injured on the job. It also shields the business from related lawsuits.

Moreover, workers’ compensation insurance can also include coverage for rehabilitation services, ensuring that injured employees receive the necessary support to return to work. This not only fosters a safer work environment but also promotes employee morale and retention, as staff members feel valued and protected. Additionally, childcare providers should regularly conduct safety training and implement health protocols to minimize workplace injuries, further enhancing their commitment to employee welfare.

Commercial Auto Insurance

Some childcare providers offer transportation services. Commercial auto insurance covers vehicles used to transport children, protecting against liability and damage claims arising from accidents.

This insurance is particularly vital for providers who operate buses or vans, as it not only covers physical damage to the vehicles but also liability for injuries sustained by passengers. Furthermore, providers should ensure that drivers undergo thorough background checks and training, as well as maintain high safety standards in their vehicles, to minimize risks and ensure the safety of the children in their care. Regular vehicle maintenance and inspections can also play a crucial role in preventing accidents and ensuring compliance with local regulations.

Insurance premiums for daycare providers have surged dramatically. Several factors contribute to this trend:

• Higher Claim Frequency and Severity: More frequent and costly claims, including lawsuits related to child injuries or abuse allegations, drive insurers to raise rates.
• Market Conditions: The overall insurance market has tightened, with fewer insurers willing to underwrite childcare risks, reducing competition.
• Regulatory Changes: New safety and licensing requirements can increase operational costs, indirectly impacting insurance pricing.

Jonathan Pearce’s experience illustrates this well. His academy saw all insurance premiums increase between January 2024 and January 2025, with liability insurance alone rising by 64%. For many providers, such steep hikes are difficult to absorb without passing costs onto families or cutting services. This report offers deeper insight into these challenges.

In addition to the aforementioned factors, the increasing scrutiny on childcare facilities has led to a heightened sense of risk among insurers. With social media amplifying incidents that may have previously gone unnoticed, even minor claims can escalate into significant legal battles, further complicating the landscape for daycare providers. Many facilities are now investing in comprehensive training programs for staff to mitigate risks, but these initiatives often come with their own financial burdens, contributing to the cycle of rising costs.

Moreover, the pandemic has reshaped public perception regarding health and safety in childcare settings. Parents are now more vigilant and concerned about the environments in which they leave their children, prompting daycare providers to enhance safety protocols and facilities. While these improvements are essential for maintaining trust and ensuring child welfare, they also necessitate additional insurance coverage, which can further inflate premiums. As daycare providers navigate this complex web of challenges, the need for innovative solutions and supportive policies becomes increasingly critical.

The rising cost of liability insurance is one piece of a larger puzzle affecting childcare accessibility. Many areas of the U.S. are considered “child care deserts,” where supply falls far short of demand. In 2018, over half of the population lived in such deserts, with Utah reaching 77%. This shortage limits options for families and puts additional strain on existing providers. The lack of affordable, quality childcare not only affects parents' ability to work but also has broader implications for community development and economic growth. As families struggle to find suitable care, they may be forced to make difficult choices, such as leaving the workforce or relying on informal arrangements that may not meet safety standards.

Low subsidy coverage compounds the issue. Only 14.5% of children under six who qualify for federal child care subsidies actually receive them. This gap means many families pay out of pocket for expensive care, which has grown 29% between 2020 and 2024—faster than the overall consumer price increase of 22%. These financial pressures can force providers to close or reduce capacity, shrinking the market further. Furthermore, the lack of adequate funding for childcare programs often leads to a cycle of instability, where providers are unable to invest in their facilities or staff, ultimately affecting the quality of care offered. As a result, many parents are left with few options, often settling for subpar facilities that may not provide the nurturing environment their children need for healthy development.

Insurance costs play a direct role here. When premiums spike, providers face tough choices: raise fees, reduce staff, or cut programs. Each option risks reducing quality or access. Understanding these dynamics helps explain why childcare remains a critical policy and business issue nationwide. Additionally, the increasing financial burden on childcare providers can lead to a higher turnover rate among staff, which disrupts the continuity of care that is essential for young children. This instability can have long-term effects on children's emotional and social development, as they thrive in environments where they feel secure and supported. As the childcare crisis continues to unfold, it becomes increasingly clear that addressing insurance costs is just one part of a multifaceted approach needed to ensure that quality childcare is accessible and affordable for all families.

While rising premiums are a challenge, there are practical steps daycare and preschool operators can take to manage costs and protect their businesses:

Invest in Safety and Training

Implementing rigorous safety protocols reduces the likelihood of accidents and claims. Regular staff training on child supervision, emergency response, and facility maintenance can lower risk and demonstrate to insurers a commitment to loss prevention.

Shop Around and Bundle Policies

Comparing quotes from multiple insurers helps find competitive rates. Bundling general liability, property, and workers’ compensation coverage with one carrier often leads to discounts and simplified management.

Increase Deductibles

Opting for higher deductibles lowers premium costs but requires having reserves to cover out-of-pocket expenses if a claim occurs. This approach suits providers with stable cash flow and strong risk controls.

Engage with Industry Associations

Many childcare organizations offer group insurance programs that leverage collective bargaining power to secure better rates. They also provide resources on risk management and regulatory compliance.

Regularly Review Coverage

As the business evolves, insurance needs change. Periodic reviews ensure coverage matches current operations without paying for unnecessary extras.

Insurance is not one-size-fits-all. Providers must assess their unique risks, regulatory requirements, and budget constraints. The goal is to build a safety net that protects children, staff, and the business without overspending.

Given the rising costs, staying informed about market trends and maintaining open communication with insurance brokers is vital. Providers should also advocate for policies that support affordable coverage and expand subsidy access, helping sustain the childcare industry long term.

For more detailed insights on the child care market and costs, resources like insurance.org and americanprogress.org offer valuable data and analysis.

Q: Is liability insurance mandatory for all daycare centers?

A: While requirements vary by state, liability insurance is highly recommended and often required to meet licensing standards.

Q: How can I lower my daycare insurance premiums?

A: Improving safety measures, bundling policies, increasing deductibles, and joining group insurance programs can help reduce costs.

Q: Does workers’ compensation cover injuries to volunteers?

A: Typically, workers’ compensation covers paid employees. Volunteers may need separate coverage or waivers depending on state laws.

Q: What happens if my daycare facility is damaged by a natural disaster?

A: Property insurance helps cover repair or replacement costs, allowing your business to recover and reopen faster.

Q: Can I get insurance if I operate a home-based daycare?

A: Yes. Specialized policies exist for home-based providers, but coverage needs differ from commercial centers.

Q: How often should I review my daycare insurance policy?

A: At least annually or whenever you make significant changes to your operations or staff size.

Protecting your daycare or preschool with the right insurance coverage is a vital step in safeguarding your business’s future. Understanding the landscape, rising costs, and available options empowers providers to make smart decisions that keep children safe and operations running smoothly.