Home daycare insurance: what your homeowners policy leaves out

If you are paid to watch other people's children in your home, your homeowners policy almost certainly does not cover the daycare. A child's injury, a parent's lawsuit and the toys and cribs you bought for the business can all fall outside it. What does cover them is an endorsement your insurer agrees to add, a separate child care liability policy, or both. Keep the coverage question separate from the licensing question, because your state's rules on each are different.

The wording below comes from the ISO standard HO-3 (HO 00 03 05 11). Your insurer's own form and your state's amendatory endorsements control, so read your policy and declarations page.

How the HO-3 treats a daycare

The form defines "business" as a trade, profession or occupation, or any other activity engaged in for money or other compensation. It then lists exceptions, and two of them are about home day care: providing care for which no compensation is received other than a mutual exchange of such services (two neighbors trading afternoons), and caring for a relative of an insured. A third exception covers activities that bring in no more than $2,000 over the 12 months before the policy period.

That leaves the usual home provider outside every exception. Care for unrelated children, for money, on a regular basis, is a "business," and the consequences run through the whole form:

The exclusion applies to the injury "arising out of or in connection with" the business, and it covers acts or omissions involving a service owed because of the nature of the business. Supervision is exactly that. If a toddler climbs a bookcase and breaks an arm, the claim against you will be framed around supervision, and the insurer will point to the exclusion. Liability exclusions: what Coverage E won't pay explains how the exclusions in Section II fit together, and Medical payments to others (Coverage F) explained covers the no-fault medical coverage that disappears here.

The house itself is still insured. A fire in the kitchen is a Coverage A loss whether or not you run a daycare. The risk is subtler: most policies include a condition about concealment or misrepresentation, and an application that answered "no" to "any business on the premises" can become an argument at claim time or a reason for nonrenewal, depending on your state's law.

Courts enforce the exclusion

This is not a theoretical gap. The Texas Department of Insurance says a home daycare caring for up to three unrelated children for at least three hours a day on three or more days a week is a listed family home, and that because a listed family home is a business, homeowners insurance will not cover losses related to the daycare (TDI, page updated April 2026). The Maryland Insurance Administration says the same in a consumer advisory for registered family child care providers: you cannot rely on standard homeowners or auto insurance for claims arising out of the child care (MIA).

Courts have enforced the exclusion on facts that are easy to imagine. In Allstate Indemnity Co. v. Riley (D.S.C., November 2020), a child in a home daycare found a handgun left on a kitchen table by the provider's adult son and shot his own hand. The court held the parents' claims arose out of the daycare business and enforced the homeowners policy's business exclusion, so there was no coverage for the lawsuit. The injury came from the household, not from the daycare's activities, and the exclusion applied anyway (Phelps Dunbar summary). The court noted that the South Carolina Supreme Court had not addressed how "arising out of" applies to this kind of exclusion, so another court could read it differently, but do not plan on that.

Your options

A home daycare endorsement. Some insurers add a daycare endorsement to the homeowners policy, usually with conditions. The Andover Companies lists coverage for a small home day care of no more than three children in its homeowners plan, depending on the state, and Kentucky Farm Bureau Insurance and Farmers Mutual of Nebraska list home day care among the optional coverages on their sites. Treat those as examples, not a shopping list. Endorsements like this typically cap the number of children, the hours, the ages or the liability limit, and many carriers do not offer one at all. See home business endorsement for what these add-ons usually do and do not cover.

A separate family child care policy. Insurers and associations that specialize in child care sell a business liability policy that often bundles general liability, professional liability for failure to supervise, medical payments to children, and abuse and molestation coverage. Child care trainer Tom Copeland suggests $1 million per occurrence and $2 million aggregate, and advises asking for the abuse and molestation coverage specifically, along with legal defense that does not erode the limit (Tom Copeland). That is his recommendation, not a rule, but the features he lists are the right ones to ask about.

Business property coverage. Cribs, cots, toys, a laptop for billing and a fenced play area do not fit inside a $2,500 sublimit. Some separate policies include business personal property, and some homeowners endorsements raise the limit. The mechanics are covered in business property at home: what a homeowners policy pays.

An umbrella policy. An umbrella policy sits above your underlying liability, but it is built on top of the policies beneath it. Many umbrella forms exclude business activity too, and they require underlying limits you may not have. Do not assume yours reaches the daycare. umbrella insurance for homeowners: what it adds and where it stops describes how they coordinate.

What states require

Whether you must carry liability insurance depends on your state and often on your license type. These examples show how much it varies:

• Texas. TDI says a listed family home must carry liability coverage of at least $100,000 for each child in care involved in a negligence incident, with an exemption process that requires written notice to every parent. See Texas.
• Ohio. Type A and licensed Type B homes must either carry liability insurance of at least $100,000 per occurrence and $300,000 aggregate from an authorized insurer, or hold a signed statement from each child's parent that the home is uninsured (Ohio Rev. Code 5104.041, version effective January 1, 2025). See Ohio.
• Maryland. The Maryland Insurance Administration says state law requires your homeowners insurer to offer a family child care provider liability coverage of at least $300,000, but only if you hold a state certificate of registration. See Maryland.

Other states have no insurance mandate for small home providers. Your licensing agency's rules and your lease or mortgage terms are the authority. Even where it is optional, a parent can still sue.

Coverage is getting harder to find

Providers have reported trouble. At a March 2025 National Governors Association meeting, NAEYC said liability insurance costs for child care have risen sharply, that some insurers have stopped offering liability plans to child care providers, and that family child care providers have been hit hardest. In its survey, the most common reason for nonrenewal or denial was that the carrier no longer insured child care programs (NGA). If you are shopping, start early, ask an independent agent who places child care accounts, and ask your licensing agency or state child care association which carriers write in your state.

A checklist before you open, or at your next renewal

1. Count the children, hours and ages you care for, and whether any are your relatives or an unpaid swap.
2. Call your homeowners agent and describe the daycare plainly. Ask in writing whether the policy continues, what the daycare endorsement costs, and what it excludes.
3. Ask a child care insurer to quote a liability policy. Compare per-occurrence and aggregate limits, abuse and molestation coverage, and whether defense costs erode the limit.
4. Ask about business property, equipment breakdown and income if you must close after a fire.
5. If you transport children, call your auto insurer. A personal auto policy may exclude business use of the vehicle.
6. If you have an assistant, check your state's workers' compensation rules. Employees injured on the job are generally outside homeowners liability altogether.
7. Keep the declarations pages, endorsements and your license or registration together, because your lender, landlord and licensing agency may all ask for proof.

Key takeaways

• A paid home daycare is a "business" under the HO-3. Liability, medical payments and most business property are not covered unless you add coverage.
• The two daycare carve-outs in the form are unpaid mutual swaps and care for a relative.
• Fix the gap with a daycare endorsement from your insurer, a separate child care liability policy, or both. Ask for abuse and molestation coverage by name.
• State rules differ: some require a set liability limit, some let you operate with a parent-signed statement, and some require insurers to offer coverage.
• Tell your homeowners insurer about the daycare. An undisclosed business can cost you a claim or a renewal.