What types of commercial insurance do you really need for your restaurant? Here's what you need to know about coverage areas, potential costs and the risks of going without insurance.
You know that you need insurance for your restaurant – you’re just not sure what types of insurance to purchase or how much it might cost you. Before you spend money on policies you don't necessarily need, here's what you should know about your risks as a restaurant owner, and what kinds of insurance coverage will help you mitigate them.
The Basic Types of Business Insurance
All business owners need general liability insurance, also known as trip and fall insurance. This policy covers you if someone is injured or has their property damaged on your premises, or by you or an employee through a work task. The risks of operating without general liability insurance are very high. No one can predict when someone might slip or trip at your restaurant. In many states, you can’t even open your business without general liability insurance.
You also shouldn’t open your doors without property insurance. It covers you for damage to the property, your business furniture, inventory, business items like computers or display cabinets and other fixtures. General liability and property insurance are often sold in one bundle called a Business Owners’ Policy, which reduces the price of both policies.
Additional Business Insurance Policies
There are several more types of business insurance policies, but many restaurants don't require all of them to safely operate. It's important to review your business's specific risks to determine which policies you should purchase. Below are 10 types of business insurance worth considering for your restaurant:
1. Product liability insurance covers you for any lawsuits or medical issues caused by the items that you sell. In the restaurant industry, this type of insurance is mainly used to protect a business if a customer gets food poisoning.
2. Workers’ compensation is a must if you have employees. It pays for your workers’ medical costs if they get injured during work, and for any damage to their property during their work. It’s illegal to employ staff without workers’ comp in most states, although some do not enforce this policy if you have fewer than three to five employees. Check your local legislature to ensure you're in compliance.
3. Equipment insurance, also called mechanical breakdown insurance, covers large items of equipment. If you’re running a restaurant, you’ll need this to protect your refrigerated cabinets, ovens, mixers and other large items of equipment in case they stop working, are damaged by a careless employee or are stolen. Equipment insurance goes beyond warranties to include theft or deliberate damage by a third party. If you can’t run the business without your freezers, you can’t risk operating without equipment insurance.
4. Auto insurance or commercial vehicle insurance covers company vehicles like delivery vans and private cars that are used for work purposes. Auto insurance provides replacements if your vehicles are written off and pays for damage done to or by vehicles during company time.
5. Spoilage insurance is a good idea for restaurants, catering companies and other food retailers. It covers you if all your food spoils because a storm downs the power lines, or if food reaches you spoiled but the wholesale company won’t give you a refund.
6. Business interruption insurance is recommended for most brick-and-mortar businesses. It pays your bills if your store has to close for any reasons listed in the policy. For example, if there’s a fire in the food court where your fast food restaurant is and the whole area is shut down for a few weeks, business interruption insurance pays your ongoing bills until your income starts up again.
7. Specific disaster coverage depends on where your business is located. If you’re in particular danger from disasters like hurricanes, tornadoes or earthquakes which are not included in your standard business insurance policies, specific disaster insurance makes sense. It will pay to rebuild or relocate your store if you’re hit by a covered peril.
8. Theft insurance pays for anything that’s lost from your business inventory due to theft. You’ll have to decide how great the risk of theft is and whether the items you’d lose are valuable enough to justify theft insurance premiums.
9. Liquor liability insurance is only for restaurants or stores that have a liquor license. It protects you from being sued if a customer injures someone else or themselves after having too much to drink in your establishment. In most states, this insurance is mandatory for anywhere with a liquor license.
10. Cyber liability insurance can be relevant for any type of business, but especially for those that rely on data. It covers you for the loss of data through theft or damage, such as the loss of customers’ credit card information.
How Much is Restaurant Insurance Going to Cost Me?
Every business is unique, so it’s impossible to say how much restaurant insurance will cost you without getting a tailored quote. But on average, basic general liability insurance, property insurance and workers compensation can cost between $500 and $2,000 per year, per policy for a small business.
Your final insurance cost will be determined by a few factors. These can include:
- Types of insurance. The more types of policies you buy, the more your premiums will cost, though in some cases buying multiple policies from one carrier will get you a discount.
- The amount of coverage you buy. Most small businesses need around $1 million of general liability insurance, although you may opt for more depending on how valuable your inventory or equipment is.
- The size of your restaurant. The larger the store space, the higher your premiums, particularly for property insurance.
Also effecting your cost is how many employees you have, since the larger your staff, the more you’ll need to pay in workers’ compensation and potentially other types of insurance, too.
- Your deductible. The higher your deductible, the lower your monthly premiums. Raising your deductible is an easy way to reduce your monthly insurance costs, but don’t raise it so high that the amount you save each month is wiped out by the amount you have to pay out of pocket whenever you make a claim.
Don't take the risk of going without insurance for your restaurant. Your monthly premiums may seem like a financial burden, but it's nothing compared to the cost of a lawsuit or repairing damage out of pocket.