Bakery Insurance: Commercial & Home-Based
Bakery Insurance Coverage
Just like baking, there are a number of ingredients that make successful bakery. But what happens when one or all of these ingredients is destroyed? That’s when bakery insurance comes into play.
Whether you run a commercial bakery in a shop or you have a home bakery business, here are the insurance products you need to protect your investment.
Who Needs Bakery Insurance?
Retailers, Manufacturers & Distributors
Any business that manufactures, distributes or sells baked goods should have bakery insurance. Whether you own and operate from a commercial building or you have a home-based bakery, you'll need insurance coverage that's specific to the risks bakers face.
Who Needs Baker's Insurance?
What Kind Of Bakery Insurance Coverage Do I Need?
Bakery Insurance Coverages
Building & Contents
Loss of Income
What's the average cost of insurance for a bakery?
Bakery insurance cost varies based an many factors:
- Number of employees
- Whether you own or rent your space
- How much sales your bakery does
- How many vehicles your business owns
- Driving records of your employees
Because of the wide variance in factors, it's hard to nail down what a bakery insurance average cost would be. A lot depends on whether you operate in a commercial building or from your house.
But if we take average insurance bakery premiums for a smaller commercial operation with a couple of employees, it might look something like this:
Average Bakery Insurance Premiums
Business Owners Policy - (Depending on property values and revenue): $500 - $4,000
Cyber Liability: $500 - $2,500
Workers Compensation (Depending on payroll): $750 - $7,500
Commercial Auto: About $1,800 per van
Will my homeowners policy cover my home based bakery?
Nope. Your homeowners policy likely has a business exclusion in it. The coverage it provides would probably not respond if you had a claim related to your baking business.
Some insurance carriers will give you the option to add an endorsement for a home based business. But the extra coverage this provides is almost always limited to an office-type business that's conducted primarily via phone and computer. Things like spoilage coverage, loss of income and equipment breakdown, which are critical for protecting your bakery business, cannot be included in a homeowners policy.
So, what does bakery insurance actually cover?
Bakeries and confectioneries face a significant amount of potential property loss. Expensive machinery and equipment, baked goods, and even your building can be damaged or destroyed.
Property insurance covers anything that happens to your property, including your actual building and the things inside of it. Of course this encompasses anything from burglary to inclement weather damage, but for the most part property insurance will come in handy in case of a fire.
- Building Coverage: This is what protects the actual structure of your building from things like fire, inclement weather, wind damage, hail, vandalism, etc. If you have a home based bakery, you should consult with the agent who handles your homeowners insurance policy to determine what coverage you already have.
- Contents Coverage: If you turned the building your bakery is in upside down and shook it, practically everything that falls out is what would be covered under your policy's building contents coverage. This includes things like cash registers, display shelves, cooking trays and artwork. Basically anything that's not permanently attached to the building.
- Flood Insurance: This is typically excluded from a standard business property policy. So be sure to ask your agent about a separate flood insurance policy if you believe your bakery is at risk for flooding.
Bakeries typically contain multiple ignition sources. Here are some of the key fire hazards that exist in every home and industrial kitchen:
- Baking/cooking ovens and machinery
- Fuel sources for the baking/cooking equipment
- Grease and oil from any deep-fat fryer
- Dust from the baking ingredients
Bakery owners can be held liable for many things that occur during the course of daily business. A General Liability policy contains two parts that are especially important to bakeries.
- Premises Operations: This is what most people refer to as "slip-and-fall" coverage. General Liability insurance will cover your business in the event one of your customers is injured while on your property. This is typically due to slipping and falling on slick surfaces. But really any type of injury they have while in your shop could be covered by this policy.
- Product Liability: In any food business, the product you make can harm someone, even if you've taken great care to prepare it. If your baked goods become contaminated with physical objects like plastic, glass or anything that could injure someone who its it, Product Liability coverage will cover your business. This is also critical to have in the event of a food-borne illness like salmonella or e coli.
The equipment you use in your bakery is critical to its survival. Events like a power surge or a mechanical failure can slow down production or even cause you to close down your shop temporarily or permanently. You need something that can protect equipment like mixers and ovens.
Equipment breakdown coverage will pay for the cost to repair or replace your machinery.
Equipment breakdown coverage does have limitations when it comes time to pay a claim, however. Within the policy, “breakdown” is typically defined as direct physical loss that causes damages to the equipment and now requires repair or even replacement. If the power to your bakery goes out or your equipment just wears out, any resulting spoilage will likely not be covered. In other words, there must be actual physical damage for coverage to kick in, such as your equipment catching on fire or falling off a delivery truck.
This is where spoilage coverage comes in.
In the bakery business, food spoilage coverage is a must. When the power goes out for an extended period of time, food that is kept fresh in refrigerators and freezers can easily spoil after enough time. Then you're left with a bunch of product you can't sell.
Food spoilage coverage pays for the lost compensation you would have received for that food if you could have sold it.
**NOTE: When comparing food spoilage to equipment breakdown coverage, there's a couple of important things to consider.
Covered property refers to the perishable stock located at the bakery which should be describe in the policy. Perishable stock simply means personal property maintained under controlled conditions for its preservation that is susceptible to loss or damage. This type of policy limits coverage to two causes of loss:
- Breakdown or contamination
- Power Outages
One or both can be chosen when building your bakery insurance coverage. But it is better to combine the two. Breakdown and contamination can also be defined in two ways:
- The change in temperature resulting from mechanical breakdown of cooling systems
- The contamination by a refrigerant.
Power outages simply refers to the change in temperature resulting from interruption of electrical power. This can be due to conditions beyond your control like inclement weather or natural disasters such as Hurricane Sandy.
Spoilage coverage is very broad. And that's why it should be added to your bakery insurance program.
Loss Of Income
Loss of income coverage will pay you in the event of your bakery having to close due to events like a fire or storm damage. Mortgage payments, payroll and other bills don't stop while your business is shut down. But loss of income coverage will provide you the money you need to make these payments and keep the lights on.
Bakery shops take cash, checks and credit card payments. And while you may think you've got trustworthy employees, theft of money and property can and does occur.
Employee dishonesty coverage can be added onto your insurance policy to cover loss from stealing by your employees.
Does your bakery have a website? Do you collect customer information or take online orders? If so, you need to consider cyber liability insurance to cover you if your company suffers a data breach or a cyber attack.
Cyber Liability Insurance can include the following coverages:
- Computer Fraud
- Funds Transferred Fraud
- Cyber Extortion
- Cyber Terrorism
- Electronic Data Restoration
- Business Interruption & Additional Expenses
Bakeries have hazards like hot ovens, powerful mixing tools and slick floors that can easily cause injury to employees no matter how well trained they are. Workers compensation protects you as the business owner by acting as the sole remedy an employee has when injured on the job.
In most states, workers compensation is required if you employ 3 or more people.
Here are some common hazards employees are exposed to in a bakery business:
- Burns by the ovens, machinery and equipment or rotating blades/moving parts on machinery can result in cuts or even dismemberment.
- Back and other lifting injuries or hernias are common place when lifting sacks of flour or other raw materials.
- Automated machinery can cause injury and loss if not properly guarded.
- Slips and falls, especially if the floors are not kept clean.
- The accumulation of noxious gases can occur if ventilation systems are not properly put into place in fermenting areas and on ovens.
Commercial Auto Insurance
If you rent or own a delivery truck or van, you will want to be sure that it is insured. Here are some possible scenarios you may encounter while making deliveries:
- Sudden traffic shift that may cause you to lose control of your vehicle
- Inclement weather such as hail
- An uninsured driver hits you
- Early morning deliveries which are often made in the dark can create low visibility
Inland Marine Insurance
It's got a funny name, but for a bakery, inland marine insurance covers damage done to any tools and equipment you have that move from place to place outside your main location. So, if your bakery has a catering operation, this coverage would protect damage done to your delivery equipment like trays, food carts and warmers.
What safety measures can I take to protect my bakery business?
Since there are so many ways that a fire could start in your bakery, it is important to set up a series of preventative measures. Most state, local or federal guidelines keep you up-to-date on maintenance of your equipment in order to operate. Here are some of the following government regulations that a bakery or confectionary will need to follow:
- All machinery and equipment must be inspected and maintained regularly to avoid wear and tear or overheating.
- Wiring must be up to date and of sufficient capacity.
- Dust factors should have good controls.
- All frying operations must be done under fire suppression systems and there must be automatic fuel shut-offs.
- There should be annually tagged fire extinguishers throughout the facility.
- A sprinkler system is encouraged.
Not only can a fire damage destroy your machinery and building, but it can ruin your food product which can have an even more devastating toll on your business financially. Most government regulations also stipulate that you dispose of raw materials (such as ingredients and food) if they have been exposed to fire, smoke, water or heat. Even a small fire loss can be significant. Are you willing to risk it?
Commercial Auto Safety
While you should have insurance for your bakery’s delivery vehicle, you should also practice a few other preventative measures. It is important to assign delivery route when necessary to increase familiarity with traffic patterns. All drivers should have commercial licensing and there should always be proper documentation that proves all vehicles are maintained. You can even insure your employees vehicles if they use them on company time.