Your Etsy Shop Could Bankrupt You. No, Seriously.

So my friend Katie makes candles. Beautiful, hand-poured, amazing-smelling candles that she sells on Etsy and at farmers markets. Last year she made about $23,000 from her little side business. Cool, right?

Then one of her candles allegedly caught a customer’s curtains on fire. The customer’s lawyer sent Katie a demand letter for $87,000 in damages.

Katie called me in hysterics asking if her homeowners insurance would cover it. I had to tell her what I’m about to tell you: it almost certainly won’t.

The Gap Nobody Talks About

Here’s the thing though. Your homeowners or renters insurance has something called a “business pursuits exclusion.” It’s buried in the fine print, but it basically says: if you’re making money from something and it causes damage, we’re not paying for it.

Some policies have small exceptions—like if you occasionally babysit or tutor. But anything that looks like an actual business? Anything with inventory, regular sales, a business name, an LLC? That’s excluded.

Katie thought because she worked from home and only made $23K (not exactly quit-your-day-job money), it wasn’t really a “business.” But here’s the truth: the IRS considers it a business. Her Etsy customers consider it a business. And now a lawyer definitely considers it a business.

According to the U.S. Small Business Administration, any business—even a tiny one—should have liability insurance. It’s not just smart; sometimes it’s legally required.

What Actually Happens When Your Side Hustle Hurts Someone

Let’s walk through the nightmare scenario because I want you to understand the stakes:

Someone buys your product. It malfunctions. They get hurt, their property gets damaged, or they have an allergic reaction. They sue you personally.

You think “okay, I’ll call my insurance.” Your homeowners insurer says “nope, business exclusion.” Your renters insurer says the same thing.

Now you’re personally liable. That lawsuit? It’s coming for your savings, your car, maybe even your house (depending on your state). And if they win a judgment bigger than what you have? They can garnish your wages for years.

Katie ended up settling for $34,000 out of her own pocket—basically wiping out everything she’d saved from her candle business plus a chunk of her actual savings. She’s still recovering financially. The business is dead. All because she thought $300/year for liability insurance was “too expensive for a little hobby business.”

Types of Insurance Your Side Hustle Might Need

Real talk: the specific insurance you need depends on what you’re doing. But here are the main types:

General Liability Insurance — This is the big one. It covers you if your product injures someone, damages their property, or if someone gets hurt at your farmers market booth. Most policies start around $300-$500/year for small businesses. For more details, read my general liability guide.

Product Liability Insurance — If you manufacture or sell physical products, this covers you specifically for harm caused by those products. Sometimes it’s bundled into general liability, sometimes it’s separate. Candles, food items, children’s products, cosmetics—if it could hurt someone, you need this.

Professional Liability (E&O) Insurance — If you sell services (consulting, coaching, design work, etc.), this covers you if a client claims your advice or work caused them financial harm. A bookkeeper giving bad tax advice, a designer whose logo somehow infringes on a trademark—this protects against those claims. More info in my professional liability explainer.

Business Owner’s Policy (BOP) — This bundles general liability with commercial property coverage (protecting your business equipment and inventory). Often it’s cheaper than buying them separately. I break this down in my BOP guide.

The “But I’m Just…” Excuses I’ve Heard

I’ve had this conversation with so many people. Here are the excuses and why they don’t hold up:

“But I’m just doing this as a hobby.” If you’re selling things for money regularly, the IRS calls it a business. If you’re advertising it, it’s a business. If you have an Etsy shop, Instagram store, or booth at markets, it’s a business.

“But I only make a few thousand dollars.” A lawsuit doesn’t care about your revenue. A $500/year candle business can still cause a $100,000 fire. A $2,000/year soap business can still trigger a severe allergic reaction.

“But I have an LLC.” An LLC provides some personal liability protection, but it’s not bulletproof. If you’re negligent, if you haven’t kept the LLC properly maintained, or if you’ve been “piercing the corporate veil” by mixing personal and business finances… that protection can evaporate. Insurance is the actual protection.

“But nothing bad has ever happened.” That’s not how insurance works. You don’t wait until after your house is on fire to buy fire insurance. You’re betting your savings that nothing will ever go wrong. How confident are you in that bet?

How Much Does This Actually Cost?

For most small side hustles, we’re talking:

• General liability: $300-$500/year for $1M in coverage
• Product liability: Often included in general liability, or $200-$400 extra
• Professional liability: $300-$600/year depending on your field
• BOP (bundled): $500-$1,000/year for most small operations

That’s like $1-$3 per day. Less than your coffee habit. And it could save you from losing everything you own.

If you’re making $10,000+/year from your side hustle and NOT spending $300-$500 on liability insurance, you’re playing a very stupid game with very serious potential consequences.

Specific Business Types I See Operating Uninsured (and Freaking Out About)

Food businesses: Bakers, meal preppers, people selling at farmers markets. Food liability can be huge. Allergen issues, foodborne illness—one claim can destroy you. PLEASE get insured.

Pet services: Dog walkers, pet sitters, groomers. If a dog gets hurt, gets loose and bites someone, or damages property while in your care… you need coverage.

Kids’ services: Tutors, music teachers, anyone who works with minors. The liability considerations are even more serious here.

Beauty/personal care: Hair stylists, nail techs, people selling cosmetics. Allergic reactions and injuries happen. Chemical burns are real.

Fitness instructors: Yoga teachers, personal trainers. Someone injures themselves following your instructions? That’s on you without insurance.

Handmade goods: Jewelry (nickel allergies), children’s items (choking hazards, safety regulations), textiles (fire hazards, allergies).

How to Get Insured (It’s Not That Hard)

Okay so you’re convinced. Here’s what to do:

1. Start with your homeowners/renters insurer. Ask about business endorsements or separate policies. Sometimes you can add a small home-based business endorsement to your existing policy for relatively cheap.

2. Get quotes from commercial insurers. Companies like Next, Hiscox, Simply Business, and The Hartford specialize in small business insurance. You can usually get a quote online in 10 minutes.

3. Talk to an independent insurance agent. They can shop multiple carriers for you and help figure out exactly what coverage you need.

4. Check if your industry has specialized programs. Some professional associations offer group insurance rates for members. Some platforms (like Etsy’s third-party insurance programs) offer coverage for sellers.

5. Actually read what you’re buying. Make sure the policy covers your specific business activities. A policy for “consulting” might not cover you if you’re also selling physical products.

The Real Talk Ending

Look, I get it. When you’re running a side hustle, every expense feels painful. You’re hustling hard for that money, and spending it on insurance feels like paying for nothing.

But it’s not nothing. It’s paying for the privilege of not losing everything you own because someone tripped over your display at the craft fair. It’s paying to keep your savings intact when a customer claims your product hurt them. It’s paying for peace of mind.

Katie would tell you: $300/year for insurance is a lot cheaper than $34,000 (and counting) in lawsuit costs.

If you’re running a business—any business, even a “just a little side thing” business—get insured. Do it this week. Do it right now. I’ll wait.

Comprehensive just laid an egg under my desk. I’m taking that as a sign that you should protect what you’ve hatched before something goes wrong. Yeah, that metaphor is a stretch. But seriously. Get insured.