Bakery Insurance – Cost and Types of Policies
Because of the unique risks involved in running any form of bakery, the need for proper Bakery Insurance should not be left off of your business plan.
All types of businesses have dangers when it comes to their physical property and their duty to provide proper and fit products to their customers.
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Bakeries must be extra careful because the environment in which they operate involves extra dangers, and by offering basic foods they are forming a fundamental component in the food chain.
The laws of most states place an obligation on business owners to ensure that the workplace is safe and secure.
Every business that deals with the public has to protect against the danger of being sued because a visitor to the workplace was injured in an accident that they can claim was due to some failure on your part to provide proper care.
Body injuries can cause a claim, but damage to a third party’s property and goods can also result in a lawsuit.
What kinds of bakery businesses need insurance?
The similarity of how all retail bakeries operate makes the bakery insurance requirements fairly standard across the whole sector.
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The main types of bakeries are:
- home bakery
- bakery shop
- pet bakery
In the next section, we will deal with the types of insurance that all of these need, with particular emphasis where necessary that depends on the type of bakery.
Liability insurance for bakeries
General liability insurance
To protect your business and yourself, you need to carry General Liability insurance cover.
It also goes by the name “trips and falls” insurance because many of these types of claims come when someone visiting your bakery falls through a broken step, or trips on a loose carpet or bumps into a hot tray that’s being moved from your oven onto a display rack.
If they fall and injure themselves, burn skin or part of their clothing and any such damages, they can claim negligence on your part and sue.
General liability insurance protects you and the business from having to defend such a claim, and from having to pay for such third-party bodily injury and property damage claims if the court decides against you.
A bakery shop should carry higher levels of general liability insurance, because your operation will probably be dealing with higher levels of visitor traffic, and the shop’s location will be more exposed to casual traffic.
Home bakeries and pet bakeries are usually more dedicated to delivery or pick-up traffic, which means there are fewer chances of someone being injured on-site.
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Product liability insurance
Because the basic nature of a bakery is to supply some consumable products (in the case of bakery shops and home bakeries, for human consumption) you are also liable for the outcome in case the products in some way cause any injury or illness to the customers.
To protect yourself in such a case, you must have Product Liability insurance.
The risks that product liability insurance protects you from are in case a customer contracts an illness that they can claim was caused by your bakery products, either during preparation (possibly with polluted or dangerous ingredients or by using contaminated equipment) or because you use improper baking methods.
Here again, pet bakeries will need lower levels of insurance since the risks of large claims are fewer.
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For bakery shops, you can face serious claims, even facing bills for hospitalization, rehabilitation, home nursing and many other medical treatments if there is a severe reaction to something that you have sold.
On top of these risks, if the nature of your business is to provide your products on a contract, for example for caterers, company canteens etc, which stipulate receiving products that meet professional and industry standards, then to have protection in case anything going wrong, you should have Errors & Omissions ( also called E&O or Professional Liability ) insurance cover.
An example of where Errors & Omissions cover would help could be if your bakery has taken an order for a special type of baked pet goods, with specific needs to avoid some ingredients that a breeder knows causes allergies for his dogs.
Suppose by accident a member of your staff adds a component that contains the trigger of the allergies.
In that case, you could be sued for negligence and may have to face a substantial claim if several of the pedigree dogs died or had to be sterilized.
A significant benefit of all of the insurance protection for these liability policies is that the insurance company is obliged to defend you in case of any lawsuit, even if you were at fault.
This means that you do not run the risk of having to pay any settlement awarded by a court, including the legal costs of the other party.
It also means that you don’t need to find and pay for your own lawyers.
Asset insurance for bakery businesses
Commercial property insurance
All of the premises where you are working, whether or not you own them or they are being used on a lease, must be protected against damage.
These damages can come from natural occurrences like storms, floods or earthquakes.
As well, deliberate damages such as fires, vandalism and sabotage must be covered.
The policy that provides such cover is known as Commercial property insurance.
Most commercial insurance policies can also cover the value of the contents of the premises, like the inventory, any equipment and furniture, computers, and so on.
When calculating the level of cover that your bakery business insurance should provide, you should consider that for all bakeries, the risk of damage can be quite high due to the use of high-temperature cooking, mechanical mixers with sharp blades etc.
Bakeries are especially vulnerable to fire damage that can easily ruin the whole operation.
Commercial vehicle insurance
If your bakery business is delivering goods to your customers, or you are collecting ingredients from suppliers, then make sure that you have the proper commercial vehicle insurance.
Commercial vehicle insurance is not the same as private auto insurance.
You are almost certainly breaching the private auto insurance policy rules if you use your personal auto for collections or deliveries because such a policy will undoubtedly exclude commercial activity.
Commercial vehicle cover also gives you much higher protection than private insurance, usually between $500,000 to $1 million in case of a major claim.
Most bakery shops and pet bakeries have invested a lot of money in the special utensils, cooking gear and appliances that modern bakeries need to meet customer demand.
All of this is at risk from damage, loss or theft.
To protect your investment, you need Equipment Insurance.
It gives you the safety that if anything happens, then you the missing equipment immediately and you will get a refund from your insurance company in due course.
Business interruption insurance
If you are running a single-person operation, and if you are reliant on the income flow from your business, it makes sense to protect yourself in case something happens that stops you from working normally.
It would be best to consider taking out a business interruption insurance policy.
Such cover is available to most small bakery businesses and it provides coverage for income lost in case of closure of the business because of personal injury or sickness until the time your business is up and running again.
How much is insurance for a bakery?
Bakery insurance costs depend on many features of your own business, such as the type of goods you supply, the size of the business, where it is located, your own claims history and many more.
In the following table, we show some general guidelines that we can give based on our own experience dealing with businesses that deal in similar sectors, such as Pet Taxi, Dog walkers and pet sitters, Retail Store, and Personal Chef.
The following are the general levels of cover recommended, with rough estimates of the range of expected costs for annual premiums:
|Insurance type||Basic level of cover||Expected range of annual premium|
|General Liability||Bakery shop: $1 million full year, $500,000 for a single claim||$300 – $550|
|Home bakery & Pet bakery: $250,000 full year, $50,000 for a single claim||$300 – $550|
|Professional Liability (Errors & Omissions)||Bakery shop: $100,000 full year
$25,000 single claim with $1000 deductible
|$200 – $350|
|Home bakery: $20,000 full year, $5,000 for a single claim with $500 deductible||$100 – $150|
|Pet bakery: $20,000 full year, $5,000 for a single claim with $500 deductible||$100 – $150|
|Product liability insurance||Bakery shop: $1 million for the full year, $250,000 single claim with $2000 deductible||$800 – $1000|
|Home bakery: $100,000 full year, $25,000 for a single claim with $1000 deductible|
|Pet bakery: $20,000 full year, $5,000 for a single claim with $500 deductible|
|Commercial auto insurance||Based on replacement cost||$1350 – $2300|
|Commercial property insurance||Calculated on insurable value (IV)||$0.35 – $0.50 per $100 IV|
|Business interruption||$10,000 with $500 deductible||$200 – $350|
|BOP insurance||$2 million general liability + calculated commercial property cover||$350 – $500 & $0.30 – $0.45 per $100 IV|
What are the government regulations for bakeries?
Although each state has its own laws, and within each state, counties and cities are required to administer and supervise the operation of bakeries, there are basic laws that are applicable across the whole US food market, administered by the Food and Drug Administration.
As an operator in the food sector, you need to be fully aware of these laws and be notified of any changes.
The best website for this is the FDA Center for Food Safety and Applied Nutrition.
Can insurance covers be combined into one policy?
Many insurance companies offer a Business Owners Policy (BOP) for small bakery insurance, which is a single policy covering general liability, commercial property and equipment.
All of the renewals will be administered through one company and in a single step.
The major benefit can be lower total premiums along with easier administration.