Bakeries—both small, independently owned establishments and large operations—have risks that can harm their financial assets. Bakeries are in-demand, profitable businesses, supplying various baked goods to a broad market. Therefore, insurance policies are essential to protect against the bakeries’ multiple risks.
Related: Guide to starting a bakery
What Are Some Risks for a Bakery?
A bakery is exposed to several types of risk, including:
- Fire damage
- Employee injuries
- Contaminated or spoiled food
- Extended closure
These risks are only some of the bakery’s potential liabilities and losses. Since liabilities or losses can put intense financial pressure on a small business, business insurance is a beneficial element in protecting funds.
Fire Damage
Considering that bakeries have many potential fire sources and a heavy fire load, fire is one of the most significant risks. Fire sources primarily include ovens, stoves, and deep fryers. In addition, faulty wiring, malfunctioning equipment, and smoking can lead to a damaging fire.
The bakery’s fire load contributes to the threat of damaging fire. A heavy fire load means that the business has many flammable materials to fuel a fast-spreading fire. In bakeries, these items include packaging materials, grease, furniture, and paper products like napkins, plates, and cups.
In particular, cooking exhaust vents are a potential fire hazard. Over time, the cooking exhaust vents build up layers of grease, and when the buildup is not removed, the chance of the exhaust vent catching fire increases. These types of fires are often severely damaging and costly.
Employee Injuries
Bakeries may have employees in various roles. However, bakers are primarily at risk of injury because they work with hot surfaces and equipment that can cause burns and scalds. In addition, employees working with deep fryers or hot grease are at risk of severe burn injuries. Other injury risks include cuts and lacerations while using knives and other sharp equipment.
Some general injuries include slips, falls, and strains. For example, wet and poorly maintained floors can lead to slip or fall injuries. Also, lifting and carrying heavy bags, boxes, equipment, and supplies can lead to back injuries and muscle strains.
Contaminated or Spoiled Food
Bakeries have a significant risk of customer illness or injury after consuming the prepared food. Some common sources of illness include food poisoning, foreign objects in the food, and unsanitary conditions. Food poisoning occurs because of improper food storage, poor work-space cleaning, and usage of low-quality raw ingredients.
In addition to potential illness, customers can also suffer allergic reactions after consuming food that has been incorrectly labeled. Unfortunately, allergic reactions can be severe and life-threatening and lead to costly liability claims. Claims of foreign objects commonly result from customers finding insects or hair in their food; these claims can also result in a time-consuming or expensive lawsuit.
Extended Closure
Bakeries depend on their location to be both open and operational to continue normal business operations. A loss resulting in damage can close a bakery for an extended period, causing a halt in income. Although a bakery can relocate during a closure, relocation is time-consuming and may require renovations in the new location, which is also costly and takes time.
What Types of Insurance Should a Bakery Consider?
Fortunately, a bakery’s risks are insurable through various insurance policies, many of which can be bundled together. Insurance is an essential tool in any business plan, protecting the business’s financial assets.
Bakeries should consider the following insurance policies:
- Commercial property insurance
- Workers’ compensation insurance
- General liability insurance
- Business interruption insurance
- Commercial auto insurance
Commercial Property Insurance
Property insurance is a core policy for a bakery that covers business-owned structures and property (i.e., equipment, furniture, inventory, supplies, and materials). Property insurance covers hazards, including fire, wind, hail, theft, vandalism, and water damage from leaking pipes.
The bakery’s structure can easily become one of the largest business assets, so adequate coverage limits are essential. A property insurance policy insures structures up to an agreed limit. The policy limit should be enough to cover a full rebuild in the event of a total loss.
Additionally, property insurance covers business property up to an agreed limit. Equipment, furniture, and inventory can be costly to replace following a loss, especially if the bakery utilizes custom equipment. Property insurance policies cover business property on a replacement cost basis or an actual cash value (ACV) basis. The difference is an ACV limitation covers items at their replacement cost, minus depreciation.
Workers’ Compensation Insurance
Workers’ compensation is a beneficial policy for bakeries with employees. This policy provides coverage for expenses resulting from employee injury. For example, a baker who suffers a burn injury from a deep fryer may have extensive medical bills and be unable to work for a period. A workers’ compensation policy covers the employee’s expenses, protecting the business from potential lawsuits.
A workers’ compensation policy offers a variety of coverage benefits for employee injuries. Some of the workers’ compensation policy benefits include the following:
- Medical bills
- Rehabilitation costs
- Disability income
- Lost income
- Funeral expenses
General Liability Insurance
General liability is another core policy for a bakery covering liability claims for bodily injury and property damage. General liability insurance will often cover products and completed operations liability coverage specifically insures claims resulting from the bakery’s product–i.e., baked goods, however, product liability coverage may be needed instead. For example, a general liability policy insures claims resulting from food poisoning, allergic reactions, and foreign objects.
General liability policies offer coverage for claim expenses, including:
- Medical bills
- Legal fees
- Settlements
Business Interruption Insurance
Business interruption insurance offers financial support during a closure. As such, a business interruption policy is a vital policy to consider since a bakery depends on an open location to maintain income.
Business interruption coverage offers a range of coverages to assist the bakery during closures. This policy covers payments on regular bills and loans, employee wages, loss of income, contents coverage, and the cost of temporary relocation.
Usually, business interruption coverage is limited to a short period. However, some companies will lengthen the coverage for an additional cost.
Commercial Auto Insurance
If you or an employee uses their personal vehicle for the bakery, such as for delivering orders or picking up supplies, you’ll want to add commercial auto coverage. Personal auto insurance won’t cover vehicles in an accident when they are used for business purposes.
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How Much Does Bakery Insurance Cost
Since each bakery has differing assets and liabilities that need protection, the costs for a bakery insurance policy will vary. Insurance companies base their prices on coverage amounts and risk exposure. Therefore, a small owner-operated bakery with rented space, no employees, and no previous claim history needs less coverage and will likely pay less than a large bakery with multiple employees and insurance claims history.
Some factors that influence the cost of insurance include:
- Owned versus rented space
- The size and condition of owned space
- The value and quality of equipment, especially custom equipment
- The number of employees on the payroll
- The bakery’s expected revenue
- Workplace safety measures and precautions
- Any past or current lawsuits or claims
Insurance is an essential aspect of a bakery business, and it is important to have well-rounded and sufficient coverage. Therefore, the best way to determine the cost of insurance is to contact several insurance companies for a quote. With multiple quotes, you’ll be able to compare coverage amounts and pricing to pick the best option for your bakery.
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