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Industry Insights

Words of wisdom from our business insurance experts.

Ghost Kitchen & Virtual Kitchen Industry: Insights & Insurance Considerations

5 min read
July 13, 2022
Ghost Kitchen & Virtual Kitchen Industry: Insights & Insurance Considerations

Making delicious food and not having to host people - that’s the dream job combo of many businesses today. 

Ghost kitchens, virtual kitchens, cyber kitchens, dark kitchens – all these terms refer to a single business model that operates only by placing orders but not interacting with people. Companies like Door Dash and Uber Eats are paving the way for a very important industry.

It appears as a lone catering industry, but the hospitality of such businesses is never brought into question, at least not after the pandemic when many people were relieved these kitchens exist.

However, as a reasonably new business branch that’s just getting spotted on the market – ghost kitchens lack reliable insurance policies because their business, like any other, is often exposed to perils, difficulties, and other property and cyber hazards while doing their job.

Ghost kitchen owners struggle to find a solution to their problems, and if that sounds like you – keep reading to learn your options.

The Business and Responsibilities in the Ghost Kitchen Industry

The ghost kitchen industry boomed after the pandemic as many restaurants continued with their work as delivery-only services. The business model appears under a virtual kitchen, cloud kitchen, dark kitchen, etc.

This particular business model appeared for the first time in the 90s. When the internet emerged, people started looking at how to order online and get their food delivered to their doorstep. Some restaurants were no strangers to this option, so the competitors had to follow suit. Thirty years later, online ordering and getting food at home became a separate business model.

Redefining Kitchens 

Virtual kitchens prepare the order they get from their customers and then send them out through delivery. Many confuse ghost kitchens with the takeaway model, but what separates the first from the latter is that ghost kitchens don't allow customers into the 'property' - they only take online orders, unlike takeaway restaurants where customers can come in and place an order on the spot.

Currently, according to user statistics, ghost kitchens will be the future of the food preparation industry, as concluding with 2021, people will spend around $30 per person on orders placed in ghost kitchens. So, there's where the money lands.

However, although the interest and demand for ghost kitchens are evident and rather lucrative, such businesses can end up paying as much as little $10,000 in the case of even the slightest mistake. In some scenarios involving food born illnesses, losses can exceed $100,000. Ghost kitchens are probably more prone to suffering mishaps because they operate online and do not interact with their customers.

Ghost Kitchen Insurance Considerations

Although ghost kitchens are news to many, they became an alternative option for restaurants during the pandemic. Restaurant owners had to open their kitchens only and started delivering food during the quarantines to keep their businesses afloat. Later, the owners of restaurants realized that such a business model was way more lucrative for their business. The option to serve more people at once without having to employ waiters was an additional boost to the budget. 

Therefore, the insurance market spotted how well-perceived ghost kitchens were becoming among the customers, so the need for devising particular insurance options arose.  

Ghost kitchens need basic real estate business-coverage, including general liability, fire, and property. Insurance policies suggest lowering limits on property and employment liabilities. Since there will be less space and staff in a ghost kitchen, the lowering option seems fair. Many ghost kitchen owners ended up saving money.

What's good about such reduced policies is the flexibility in arranging by adding and reducing the policy according to your needs and budget. 

But, still, the need to get a better insurance policy covering all the damage and danger liabilities is more than needed. 

Reasons Ghost Kitchen Insurance Policy Is Urgent

The list below covers several points ghost kitchen owners identify as crucial reasons why ghost kitchen insurance is much needed at this point.

  • Product Liability & Foodborne Illnesses: Before each virtual kitchen owner files for coverage, they need to assess the food liabilities, especially the foodborne illnesses. When doing so, keep in mind that the assessment must include the entire product journey, including making, baking, and delivering. It doesn't end at the baking, which is a mistake that many restaurants make when they do foodborne illnesses assessments.
  • Commercial Automobile Liability (for delivery and transport): The food needs to get from the kitchen to the customer purchasing it, so many companies hire drivers or purchase their own automobiles. If a worker gets into an accident between locations, the business could be responsible for injury or damage.
  • Cyber Attacks and Privacy: Since these properties are basically more virtual than physical business, cyber-attacks shouldn’t come as a shock when an online payment option is involved. Therefore, cyber attacks and privacy breaches policies are of the utmost importance for a ghost kitchen;
  • Contingent Business Interruption (CBI): As the entire business, including the payment of a virtual kitchen, happens online, the ghost kitchen industry calls for CBI protection. Cyber-attacks often won’t aim to break the finance vendor when they happen, but there’s a high possibility for them to freeze your business. In such instances, having coverage won't bury the business to the ground.
  • Kitchen Equipment & Property: Any size operation will invest a significant amount of their capital into their property. Items like cooking equipment, HVAC, tables, chairs, computers, etc. are all exposed to damage, theft, and other perils.

These reasons are only a few reasons why the virtual kitchen industry requires an insurance policy. and learn more about a custom policy for your business today.

Ghost Kitchen Insurance: Policy Costs

There are a few insurance policies that cover ghost kitchens in the US. The costs for these policies vary from provider to provider and depend on what each policy has to offer. 

Essentially, the ideal coverage plan should include:

  • Cyber Attacks;
  • Product Liability;
  • Employment Practices Liability Insurance (EPLI);
  • Property Insurance;
  • Automobile-Related Accidents;
  • Injured Employees.

Apparently, these coverage plans are sufficient to cover unwanted expenses, hacking attacks, property liabilities, and accidents. However, roughly speaking, the premium coverage plans can reach up to $5,000+ annually, while the minimal virtual kitchen insurance costs begin at $300. 

The factors that stimulate the fluctuations include the location of your ghost kitchen, the provider you choose, the plan you opt for, etc. You can determine the monthly costs for insurance as you specify the needs.

Mind that when you file for insurance, you might have to provide documentation of the property, your staff, partners, and so on for the insurance assessment. Afterward, you'll have to wait for some time, between a couple of days to a week, depending on the insurance provider you choose.

Also, even after you get your ghost kitchen insurance approved, you might have to offer additional paperwork when you file a claim in case of an accident or other peril. The insurance often needs evaluation of the damage before they reimburse their clients.

Ghost Kitchen Insurance: Conclusion

As the ghost kitchen industry continues to thrive, getting an insurance policy is imperative. 

Insurance policies must pay closer attention to the ghost kitchens. According to Morgan Stanley, the online deliveries are expected to be around 21% or 40% more than the usual in-restaurant meals, which are expected to come at 15%.

The business model of the ghost kitchen is much more profitable and flexible than the usual restaurants or take away drive-thrus. That is, many future businesspeople interested in the catering industry are more likely to invest their money in something more profitable and trendier to attract a more significant customer audience.

All things considered, even the slightest mistake in a ghost kitchen business can cost owners a fortune because their entire interaction takes place online, except for baking and cooking. Therefore, ghost kitchens require a proper virtual kitchen insurance policy, so if you fall into this category, make sure to gather all the right info and have a meetup with an insurance broker that specializes in ghost kitchen insurance for some peace of mind.

Tyler Crawford
by Tyler Crawford
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