As with any business, owning a restaurant comes with a long list of potential risks and liabilities. Having the right kind of restaurant insurance can go a long way towards protecting your investment and ensuring that you are covered in a number of different scenarios. Keep reading to find out how you can properly insure your restaurant and save yourself from potential hardships down the road.
Selecting the Right Business Insurance Package
A restaurant needs business insurance, of course, but tailoring the right package that includes all the specific policies that will keep you covered in a variety of situations is essential. Properly insuring a restaurant requires a comprehensive package that will protect you against the risks that are unique to restaurant ownership, as well as the more general risks that come with owning any business.
Specific Insurance Requirements in the Restaurant Industry
There are certain risks that a restaurant owner could face on a daily basis. Anything from a grease fire to a food poisoning claim could put your kitchen out of commission for days or even weeks. You could also face any number of legal issues with employees, vendors, or subcontractors.
The key is to have all your bases covered in the event that unforeseen incidents pop up which temporarily put the brakes on your business. A reputable insurance company will be able to offer you the exact policies you need to mitigate risk and sustain a successful business well into the future.
What to Know Before You Get a Quote
Before contacting an insurance broker, it’s a good idea to have some basic information on hand about your restaurant. There are a series of questions you will be asked, either online or over the phone, when you request a quote. The more accurate your information is, the more accurate your quote will be.
You will need to know:
- The age of the building your restaurant is located in
- The square footage of your location
- The type of fire protection equipment you have
- A description of the security system, if you have one
- The approximate value of your inventory and equipment
- Projected sales numbers
- The average number of customers you have per week
- The number of employees you employ
What a Typical Restaurant Insurance Package Should Look Like
The following is a list that includes the basic insurance required by any business, as well as some additional policies that would only be needed by a business that serves food and alcohol. Some of these policies, such as general liability, are mandatory, while others are a best practice that will keep you safe and financially above water in worst-case scenarios.
General Liability Insurance
This is mandatory insurance that will protect you against lawsuits related to injury or property damage that occur through the fault (or perceived fault) of your business. For example, if a customer is injured on your premises, the claim would fall under this category. While this is the most basic form of insurance that a business can have, and it does cover quite a bit, there is plenty that does not fall under general liability.
Property Insurance
This type of insurance is highly recommended in the restaurant business, where fire risk is greater than average due to the frequent use of deep fryers and other risk-prone appliances. Property insurance will also protect you against damage incurred from sewer backups, weather events, and other natural disasters.
Business income insurance can be added under the property insurance umbrella – this will protect you against any financial losses that must be absorbed while your restaurant is shut down for repairs. Keep in mind that if a natural disaster hits and severe property damage is incurred, you could be shut down for months.
Ordinance and Law Insurance
This type of coverage also falls under property insurance. It is a great option to add on to your policy as it will protect you against any financial consequences if your building is inspected and deemed to not be up to state code. It will pay for required projects such as handicap accessibility, fire safety equipment, and emergency exits.
This insurance can even be applied if your restaurant needs to be rebuilt from the ground up due to severe code violations. If you are operating out of a very old building, it is probably worthwhile to invest in this extra insurance.
Equipment Insurance
This covers all of your electrical equipment and machinery, items which you’ll have plenty of if you’re in the restaurant business. Don’t assume that all of your equipment is covered under your general property insurance. While some of it may be, there will likely be exclusions (as always, read the fine print, or ask your broker).
Workers’ Compensation
Workers’ comp insurance is mandatory in California. If one of your employees becomes ill or gets injured on the job, this type of insurance will cover your legal expenses. Even in a worst-case scenario where an employee dies from a work-related accident, this insurance will protect you financially.
Spoilage Insurance
If you own a restaurant, the likelihood of losing large amounts of food due to a power outage is high. Even if your power only goes out for a few hours, you could be out of pocket for many perishable supplies. Think about how often your power goes out in an average year, and you might find that this extra coverage is worth it.
Communicable Disease Insurance
Since the pandemic started, more businesses have been asking about this form of insurance. It will cover you if a customer makes a claim that they contracted a contagious illness due to your restaurant’s poor hygiene practices. This does not include food poisoning claims, which fall under general liability.
Smart Optional Insurance Add-Ons
There are a few “extras” that are not strictly required but will give you the peace of mind you need to operate in the often challenging world of restaurant ownership. For example, general liability or property insurance will not cover you for damage to your signage. Restaurant signage can be quite an investment and it’s easily damaged due to its exterior positioning. It’s also prone to vandalism. For this reason, adding signage coverage makes sense.
We also recommend adding liquor liability insurance. Unless your restaurant has a strict overserving policy in place, it’s possible that a customer could get into a DUI incident after leaving your premises and then blame you or your staff for it. When requesting a quote, ask about these and other add-ons that can fill in any of the gaps in your primary insurance policies.
How Much Does It Cost to Insure a Restaurant?
The cost of restaurant insurance can vary widely depending on several factors. Are you operating in a state that is particularly prone to natural disasters? Is your location near a flood zone or a large body of water? Do you offer take-out services that will require auto insurance? Does your restaurant also have a bar or patio? Your broker will examine what your risk exposure is before coming up with a plan that works for you.
A reputable broker will always try to save you as much money as possible, while still ensuring that you are managing all your risks from an insurance perspective. Your insurer can help you to customize a policy package that is within your budget while mitigating as much risk as possible.
The Risks of Not Having Adequate Insurance
As a business owner, insurance is not the place to cut corners. While a reputable insurance company will try to tailor the most cost-effective package for you possible, remember that a very skinny policy package will leave you exposed from multiple angles. We’ve seen too many great businesses go under permanently because they were not able to sustain themselves financially after a claim was made against them.
If you are just starting out in the restaurant business and are on a very tight budget, it’s okay to just start with the basic mandatory policies (if you must). However, as soon as you are able to, it’s important to consult with a broker to beef up your package wherever you can. You may add a couple of new sub-policies with each passing year as your business grows.
Periodic Policy Reviews
Revisiting your policies periodically as a reminder of what you’re covered and not covered for is a wise move. Always read the small print! It often happens that policyholders are not protected for something that they just assumed would be covered. Make note of those areas that you’re not sure you’re covered for. This is a good time to discuss with your broker how you can reinforce your policy plan, if needed.
If you are looking to establish a business insurance plan, or perhaps just want to reinforce the restaurant insurance package that you already have, our team of insurance experts is here to help. Contact us today at ISU–Armac Insurance Services for a free quote!
