Home Baking Insurance: 3 Must Knows

Among the many niche cottage industries that surged during the pandemic, home baking continues to thrive. Between cottage food laws, permits, labeling requirements, taxes, and insurance, there is a lot these small business owners are responsible for in addition to producing their signature baked goods. Read on for three major must-knows every home baking business owner needs to get a handle on to be successful, including: 

1. Know the risks of home baking 
2. Know your local cottage food laws
3. Know what insurance you need for baking

1. The Hidden Risks of Home Baking: Why You Need Insurance

Baking from home comes with several hidden risks that aren’t always obvious at first glance. Proper setup, food safety training, and insurance coverage are essential for any serious home-based baking business. Here’s a quick overview of key concerns:

• Cross-Contamination
  Shared kitchen spaces can expose baked goods to allergens like nuts or gluten. Even with cleaning, it’s hard to fully prevent cross-contact, posing risks to allergy-sensitive customers.
  
• Property Damage
  Long oven use and bulk storage of flammable ingredients increase fire risks. Damage caused by business activities is often not covered by homeowners insurance.

• Liability Issues
  If a customer gets sick or injured (like slipping during pickup), you could be held liable. Without insurance or an LLC, your personal assets may be at risk.

• Insurance Gaps
  Standard home insurance usually excludes business-related claims. Without a business policy, losses like stolen equipment or injuries during pickups may not be covered.

• Regulatory Non-Compliance
  Selling without the right permits, inspections, or labels can lead to fines or shutdowns. Laws differ by state, and ignoring them puts your business at risk.

2. Cottage Food Laws Vary By State: Compliance is Essential

Cottage food laws differ from state to state – make sure you know exactly what’s required where you live before you set up your home-based baking business. Here’s an outline of what’s required of North and South Carolina’s home-based bakers: 

• What You Can Sell
  Can sell non-potentially hazardous, shelf-stable foods. Items that require refrigeration (like cream pies or cheesecakes) are generally not allowed.

• Kitchen Inspection
  Must pass a kitchen inspection, if applicable. North Carolina requires inspections through NCDA&CS; South Carolina does not.

• Registration Requirements
  Must fulfill state registration rules. NC requires product and label approval through NCDA&CS. SC requires registration with SCDA and a food safety course.

• Labeling Requirements
  All goods must be labeled with your business name and address, full ingredient list, allergen info, net weight or volume, and a required disclaimer.

• Where You Can Sell
  Can only sell directly to consumers – at farmers markets, roadside stands, or from your home. No wholesale or interstate sales. SC has a $20,000 sales cap; NC does not.

3. Home Baking Business Insurance: What’s Required?

If you have – or are thinking of starting – a cottage bakery, insurance should be top of mind. But what type of insurance does a home baker need? Unsurprisingly, home baking insurance is not a singular policy. You need a few types of insurance for baking at home, and others are optional:

• General Liability Insurance
• Product Liability Insurance (critical)
• Home-Based Business Insurance
• Commercial Property Insurance (optional)
• Commercial Auto Insurance (if applicable)

Depending on your specific circumstance, it may be advantageous to explore a Business Owner’s Policy (BOP) or umbrella insurance. More on these later.

General Liability Insurance: Required

General liability insurance is the foundation of protection for any business. This coverage protects you in case a third party experiences bodily injury or property damage as a result of your business activities. For example, if a customer trips and falls while picking up an order from your home, this policy would help cover medical bills and legal costs. 

It’s also helpful if you attend events like farmers markets or pop-ups, as many venues require proof of this coverage.

Key protections:

• Bodily injury (e.g., slips or falls during pickups)
• Property damage (e.g., damage to a client’s car during delivery)
• Legal fees and settlements

Product Liability Insurance: Critical

Often bundled with general liability, product liability insurance specifically covers claims related to the food you produce and sell. This is critical coverage for all home bakers. If someone alleges that your cookies caused a severe allergic reaction – or they claim to have gotten food poisoning from your banana bread – this coverage helps protect you from the financial fallout, including lawsuits. 

Even with the highest standards of cleanliness and labeling, mistakes can happen. This policy is especially critical for home bakers since you’re working in a kitchen that might not be inspected regularly.

Key protections:

• Illness or allergic reactions from baked goods
• Undisclosed allergens or labeling errors
• Legal defense costs and product recalls

Home-Based Business Insurance: Recommended

Most homeowners or renters insurance policies exclude coverage for business-related losses. That’s where home-based business insurance comes in. It fills the gap by protecting your business assets inside your home – like mixers, ovens, or ingredient stockpiles – against risks like fire, theft, or power outages that spoil your goods. Some insurers offer this as an add-on to your existing home policy, while others provide standalone policies.

Key protections:

• Loss or damage to baking equipment and supplies
• Business interruption due to covered events (e.g., fire, flood)
• May include some liability coverage for in-home operations

Commercial Property Insurance: Optional

If your home bakery includes high-value equipment or you store significant inventory, commercial property insurance is worth considering. It protects your physical business assets from events like theft, fire, vandalism, or weather-related damage. While this is more common for businesses with separate storefronts or commercial kitchens, some home bakers with significant investment in tools and appliances opt for this to cover expensive stand mixers, specialty ovens, or freezers.

Key protections:

• Damage to equipment (mixers, ovens, shelving)
• Loss of inventory (ingredients, finished goods)
• Replacement costs due to covered events

Business Owner’s Policy (BOP) vs. Umbrella Insurance

A Business Owner’s Policy (BOP) is a bundled insurance package designed for small businesses that typically includes general liability, commercial property, and often business interruption coverage. 

For home bakers and product-based businesses, a BOP often includes product liability insurance as part of the general liability coverage. It serves as the primary layer of protection for day-to-day business risks and is usually the first policy to respond in a claim.

In contrast, umbrella insurance is a secondary layer of protection that kicks in only after the limits of your primary policies (like a BOP or commercial auto policy) have been exceeded. It does not include property coverage or cover your own business equipment, and it typically doesn’t replace standalone product liability insurance. 

However, if a product-related claim results in a lawsuit or settlement that exceeds your BOP’s liability limits, umbrella insurance can help cover the remaining costs, offering extended protection for high-exposure incidents.

As an example, a BOP could cover a fire in your kitchen or someone slipping on your porch, whereas umbrella insurance would step in only if the damages or lawsuit exceeded your BOP’s liability limit.

Baking from Home Insurance: How to Get It & How Much It Costs

To get home baking insurance, reach out to an insurance provider and ask about a Business Owner’s Policy (BOP) or home-based business coverage. Be prepared to share details about what you bake, how you sell your goods, your annual revenue, and whether customers visit your home or you make deliveries. Make sure product liability is either included or available as an add-on.

How much is bakers insurance? It will vary depending on factors like your state, products, annual sales, and the amount of coverage you choose. On average, many home bakers pay between $300 and $800 per year for basic coverage. A bundled BOP is often more cost-effective than buying individual policies, and some insurers even offer home-based business endorsements as an add-on to your homeowners policy for smaller operations. It’s wise to balance affordability with adequate protection to avoid costly surprises later.

Ready to explore what insurance you need for your baking business? Connect with our team at Independent Insurance Associates today to discuss your specific needs. We look forward to being of service!