If you enjoy coming up with recipes and cooking or baking for others, you may have thought about starting your own business out of your home. After all, what better way to make people happy than to provide a food and drink service. And running it out of your home means little to no overhead, other than the necessary expenses like permits, licensing, and of course insurance. Before you can make that first sale and start turning a profit, you must have the right insurance in place, so let’s discuss what that is.
It is a common misconception among many home-based business owners that they don’t need business insurance because their homeowner’s insurance will provide coverage. Unfortunately, that is not the case. Usually, the moment you start to earn an income out of your home, your claims may be excluded by the homeowner’s policy. It is important that you always read your insurance policies so you know of these types of exclusions.
Some homeowner’s insurance policies have what is called an “incidental business endorsement” which can apply, but only on rare occasions and usually when the business does not generate a lot of money. Think of a side business or in-home daycare that does not have any employees or a lot of kids. The keyword here is incidental. And, it has exclusions as well so if you do attempt to go this route you may be surprised at what you read.
Even though you don’t have the same amount of risk as a restaurant or storefront, you do still face a large amount. Being able to manage these risks is essential to your business growth and one of the easiest and most financially sound ways of doing so is to have the right insurance. First, know the risks you face.
Physical Damage – Certainly one of the first things that comes to mind regarding what a food service business will face is fire. And, if you are running your business out of your home that means the place you live could be in danger. You can insure the space you use under a Commercial insurance policy so you can repair it without dipping into your profits.
Liability – If you are having your clients come to your home there is a risk of liability by them slipping and falling on your premises. If this happens and they are injured you could face not only a lawsuit but their medical bills and any other expenses related to the incident. If you are delivering then you have the exposure of damaging someone else’s property which could also lead to a lawsuit.
Illness – Of course, because you are dealing with food, you must consider the fact that food can become contaminated and your customers could get food poisoning. This is especially true with a home-based company since there are other people in the home that could damage the food, or be sick and spread it through the food.
Injury – You also need to consider your own injuries that could occur due to working with some equipment that can be dangerous like knives and fire. Also, if you grow big enough that you have employees, they are at risk for injury as well.
Because each business is different, there are different insurance policies for different scenarios. We will list the most common ones that you should have, but keep in mind that this list is very comprehensive and may not cover all the risks you face. For example, someone making food that involves raw chicken will have a higher exposure to risk than someone making bread. Make sure to do your research based on what type of food you will be selling, and how you will be selling it (ie pickup, delivery, shipping).
General Liability – When it comes to lawsuits General Liability is the first stop. It will provide coverage for bodily injury and property damage to third parties. For example, a customer slips in your kitchen while picking up their order because you forgot to clean up the water you spilled. Or you sit hot food one someone’s counter and it damages the surface and you have to pay to fix it. A big expense associated with lawsuits is defense costs and those will be covered as well. Most vendor contracts require this at a minimum for food and drink service.
Food Contamination/Poisoning – Probably the biggest risk you will face by cooking or baking and serving food to people is food poisoning. If a client gets sick because of your food, you can be sure that they will sue you and if it happens to multiple people you could be in huge financial trouble without insurance. Food contamination is another big issue for those in the foodservice industry. Even if it is not your fault, and a shipment arrives contaminated, you will have to throw all of those ingredients out and buy new. How will you pay for the replacement items?
Commercial Auto – Making food deliveries is a great service to offer your customers and can even earn you some tips. However, the moment you get in your personal vehicle for business it must be insured on a Commercial Auto insurance policy. Many contracts with vendors will require this as well.
Workers Compensation – If you decide to have employees than you will have to get Workers Compensation insurance to provide them with lost wages and medical expenses if they become ill or injured due to a work-related incident. While most home-based foodservice businesses might not have employees, it is worth mentioning. Many states require Workers Compensation insurance even if you have only one part-time employee. Make sure you know the law in the state you live when you start your business if you plan to hire any employees.
Cyber Liability – In today’s world it would be surprising if you didn’t take online payments, or payments with your phone using some kind of card reader. If this is the case, or you store any customer information online, you should have Cyber Liability insurance. With the number of data breaches that happen nearly almost every day, it is crucial coverage to have especially because most of the Cyber policies assist with public relations. We often don’t even know about a data breach when it happens because it is quickly resolved, and most of the time that is because of Cyber Liability insurance.
There are many other types of insurance policies that are available and that you might need to add to your insurance portfolio depending on your needs. You might want to also consider Employment Practices Liability, Umbrella Liability, and Professional Liability if you plan to offer any kind of cooking classes at any point.
Before you sign a contract with a vendor it is absolutely imperative that you read it. Many vendors will have standard insurance requirements like General Liability, Auto Liability, and Workers Compensation. Often, they will require that you list them as additional insured on your policies. Make sure when you purchase insurance that this is an option, and some companies will do this for free while others charge. Unfortunately, because of laws and claims, these contracts can change frequently. It is critical to your business that you read them thoroughly, and even have a lawyer review because you don’t want to get into a situation where you have unknowingly breached a contract. Something as simple as not having the required limits can be detrimental to your business. While you may think that because you are small potatoes and operating out of your home means you aren’t big enough to be sued, don’t make that mistake. You don’t want to start a business you love, only to make a simple mistake and have to shut it down.
CoverWallet is an online platform for business owners who can handle their own insurance buying process. Once you have determined which insurance policies you need, you can simply go on our website and do quotes on your own. You can choose different limits and coverages based on your needs. We offer a ton of educational information so that you will be able to determine your needs in the comfort of your own home after all that is where your business was born. Once you quote your policies and are happy with the results you can purchase them right online. Don’t worry, we won’t leave you out to dry. If you need assistance, we do have a team of educated insurance advisors available to assist you. It is an exciting time owning a home-based food service business and we want to help you get your delicious food into the belly’s of your lucky customers by protecting your business.