Wondering if you should get business insurance for your California Cottage Food Operation (CFO)? Will your homeowner’s or renter’s insurance cover your home-based business? Do you need liability insurance for a farmer’s market or special event? CFOs are asking!
Do I need insurance?
The state of California does not require you to get liability insurance for your cottage food business. By their nature, cottage foods are some of the least risky foods and as far as we know, no lawsuits–or even health complaints!–have been brought against a legal CFO anywhere in the country. However, you are still at risk for injury to an employee or customer on your property and liable for medical bills if your food does make someone ill.
In general, your homeowner or rental insurance policy will not extend to a home-based business. If your company is a sole proprietorship (or partnership), you and your business are the same meaning that your assets are at risk if someone sues you. If you formed a limited liability corporation (LLC), it limits your personal liability, but you will incur an $800/year franchise tax fee in California. Most CFOs are sole proprietorships.
If you are concerned about your assets, totally risk-averse, or if you often have people coming over to your home to pick up their product, you may want to consider liability insurance. As your business grows, your risk increases so determining when to get insurance is a personal decision.
Where do I get business liability insurance?
Some homeowner insurance companies also offer general liability insurance for your business. Rates vary, but are generally $500-$800 per year. Contact your own agent for a quote and be sure they offer liability protection for your premises and for your finished product. Check to make sure you can get “additional insured” certificates if you need to include others for a market or festival.
Recently a new program called FLIP (Food Liability Insurance Program) has emerged specifically to provide annual liability insurance for food providers, including CFOs. (Click HERE for link) Because all insurance companies base their rates on risk and cottage food products are low risk, lower rates can be offered to this target community. If you need to extend coverage to a third-party—a farmer’s market, for instance—it is easy to add them as additional insureds. The standard policy is $290/year.
Just need insurance for a special event?
If you want to participate in a festival or special event, you may be required to show proof of insurance, AND to have the event and organizers listed as “additional insureds” meaning that they also are protected if your food causes harm. If you do not have an annual policy you can get temporary insurance at www.FastCov.com (click HERE). Sponsored by American Specialty Insurance and Risk Services, A/A+ rated insurers provide coverage for Vendors and Concessionaires at an event lasting 30 days or less at one location. Coverage begins the day after the application (or later if you specify) and lasts the duration of the event. Everything is easily done online and confirmation is instant. No phone assistance is available, but you can email questions not addressed in the FAQs. Cottage Food Sandie’s one million dollar ($1M) general liability policy for a local festival cost $89. Adding the festival sponsors was easy and proof was instantly available. For more than 3 events over 12 months, the FLIP insurance would be a better bargain, but for test marketing your product at a few festivals, the Fastcov insurance might be a more affordable option.
Whether you need liability insurance to participate in a market or festival or want the peace of mind that your assets are protected, multiple options are available. If you have more information, ideas, or suggestions, please comment!