Do I Need Insurance to Sell Baked Goods from Home?

Baked goods are delicious, and if you’re a baker, you may have that lightbulb moment where you decide to open your own business in your home. However, you need to consider laws and regulations for home bakeries and home bakery insurance requirements.

Do You Need Insurance for Selling Baked Goods from Home?

As a baker, you want to make people happy. Insurance comes into the equation when something goes wrong. For example, if you have 10,000 customers and one has a peanut allergy and has an allergic reaction to your food, they can sue you.

You may be liable for the person’s:

• Medical bills
• Lost wages
• More

Insurance is a necessity for anyone selling baked goods from their home. The Food Liability Insurance Program (FLIP) is a great choice for home bakery insurance because it’s a type of policy that covers:

• Liability
• Personal injury risks
• Etc.

When you have the right insurance in place, it protects you, your business, your employees and your customers. If you have your own home and are sued without insurance, there’s a chance that a major lawsuit can also target your home.

In addition to basic liability coverage, you will also need product liability insurance, too.

Product liability insurance is what will protect you in the event that a customer does have a negative reaction to your food. Your baked goods are your product, and this insurance will cover claims of allergic reactions or adverse side effects to your food.

When working with an insurance provider, be sure that the policy they create comes with:

• General liability insurance
• Professional liability insurance
• Product liability insurance
• More.

Insurance will help protect you in multiple ways, including covering:

• Bodily injury to customers
• Third-party property damage
• Errors and omissions
• Defense costs

You can sell a cake to a family member and never worry about an insurance claim, but when you begin selling to others, insurance is a form of risk mitigation that you must have.

Understanding Cottage Laws

Cottage food laws are required in most states for anyone who is operating a “Cottage Food Kitchen.” Rules do vary by state, so it’s something that you need to research for your own state specifically.

However, most states will require you to meet the following requirements:

• Home kitchen inspection
• No pets allowed in the kitchen
• Zoning clearance or permitting
• Business license

In general, a Cottage Food Kitchen is an individual who sells food out of their home kitchen that includes:

• Baked goods
• Dry cake
• Cookie mixes
• Nut mixes
• Dry cereals
• Jams
• Jellies
• Breads
• Cake
• Pie
• Cookies
• So on

Even if you sell certain types of candles, you may fall under the classification of a Cottage Food Kitchen.

In some states, you may find that you’re not allowed to sell baked goods from your home. For example, in Nebraska, you can only sell baked goods at a farmer’s market. If you sell these goods from your home, it may be considered illegal.

There are even some states that allow you to sell goods to individuals, but you cannot sell them to retail stores for resale.

Working with a lawyer to set up your business or understand your state’s laws may be required so that you don’t sell illegally from your home. It’s always best to operate your baked goods business with the proper insurance and within the confines of your local laws.

Home Bakery Insurance Requirements

If you run a home bakery, you know that insurance is a must-have for your business. But what are the requirements for your coverage?

Each state has its own insurance requirements for businesses, so it’s important to do your research and learn the requirements in your location.

That said, there are some types of coverage that most states will require, or vendors and contracts will require. We have already discussed product liability.

Other essential insurance coverages include:

General Liability

General liability is one of the most important coverages for any business. It helps protect against bodily injury and property damage claims.

Every business has unique needs, but as a general rule of thumb, a $2 million limit should be adequate.

Tools and Equipment Insurance

A tools and equipment insurance policy will protect your equipment if it’s damaged or stolen in a covered peril. 

Insurers may have different limits for this policy, but generally, you can choose between a $5,000 and $10,000 limit per item.

Cyber Liability

Many home-based bakeries use tablets, smartphones and computers to manage orders and payments. But when you store customer information on your devices, there’s always a risk of being hacked or being the victim of a data breach.

Cyber liability insurance can help cover the cost of a cyber security attack, which can be very costly.

Limits can vary, but $100,000 is common for this type of policy.

Other Insurance for Cottage Food Business

Along with the basic and essential insurance policies, you may find that you need additional coverage to mitigate risk.

Here are some additional coverages to consider for your home bakery insurance policy:

Commercial Auto

If you offer delivery services for your baked goods, then you’ll need to ensure that you have a commercial auto policy. If you use your personal vehicle for commercial purposes and get into an accident, your insurer likely won’t cover the damages or liability.

When using your vehicle for commercial purposes (e.g., making deliveries), you’ll need to ensure that you have commercial auto insurance. You’ll find that vendors and contracts will often require commercial auto insurance, so you will likely need it anyway.

Food Poisoning/Contamination

In the food business, there is always a risk of contamination or food poisoning. If a customer gets sick from your food, you can be held liable for damages. If multiple people are affected, you can easily find yourself facing financial ruin without proper insurance.

There’s also the risk that a shipment of ingredients arrives contaminated, and you’re forced to dispose of them. Replacing those items may come at a significant cost to you.

Having food poisoning/contamination insurance can help cover these risks.

Workers’ Compensation

If you hire someone to help you with your business, then you will need workers’ compensation insurance. Workers’ comp will cover the cost of medical care, lost wages and other damages if your employee is hurt while on the job.

Most states require workers’ compensation if you have any employees, so make sure that you budget for this expense if you decide to hire.

The Bottom Line

If you sell baked goods from home, you need insurance for selling baked goods. Every business comes with risks, and home-based bakeries are no different.

It’s important to check your local laws and regulations to ensure you get the right type of coverage and the right amount. It’s also worth consulting with an agent who has industry experience to help you cover all of your risks.