Restaurant Insurance: Know the Basics
When you were dreaming about opening your own restaurant, you spent hours trying out various concepts, drafted multiple iterations of the menu, and said countless different names out loud. You considered the sourcing of the wood for the tables in the entry, whether or not you would hire your nieces and nephews as front-of-house employees, and whether or not you would accept restaurant reservations. It’s possible that you didn’t think about restaurant insurance. Yes, it’s kind of a buzzkill.
Restaurant insurance is a vital part of owning a restaurant. While business insurance is one of those gray areas, experts say restaurant insurance is not an area to skimp on.
Restaurant insurance protects small business owners from a wide range of problems, none of which you want to think about as a restaurant owner. Coverage for everything from broken equipment to liability insurance is available for restaurant owners. It is important to keep in mind that where you live will affect what types of insurance you need for your restaurant. And you’ll need to carry certain types of insurance to satisfy your bank loans and mortgage.
Common restaurant insurance policies
General Liability Insurance
General Liability Insurance is the umbrella policy for small businesses, and is recommended for all business owners regardless of their field or industry. A General Liability policy will protect you if someone slips on a banana peel in your restaurant, or if someone gets sick after eating in your restaurant. This policy provides both defense and damages if you, your employees or your products or services cause or are alleged to have caused Bodily Injury or Property Damage to a third party.
Property Insurance is really important if you own the building where your restaurant is located. This policy also insures your business personal property, including restaurant equipment, inventory, tools, computers, etc. Property Insurance will protect your property in the case of fire, vandalism, theft, smoke damage etc. It may not cover natural disasters, such as floods or earthquakes, although there are separate policies for those types of events.
Many restaurateurs don’t realize that there are 50 different sets of laws governing liquor liability: one for each state. Some states, such as Alabama, carry strict liquor liability laws, while other states, like Nevada, have more lenient restrictions. Liquor liability insurance for a restaurant is designed to protect that restaurant from third party liability, such as over-serving, serving minors, serving a known drunk, or serving an individual that gets in a drunk-driving incident after leaving the establishment.
If you have a company vehicle, it may be covered in your general liability. If not, there are types of automobile insurance that may be relevant to your restaurant. Commercial Automobile Insurance protects a company’s vehicles. With Commercial Automobile Insurance, you can protect vehicles that carry employees, products or catering equipment. Commercial Automobile Insurance will insure your restaurant’s cars, whether they are SUVs, vans or trucks, from damage and collisions. If you do not have restaurant vehicles, but your employees drive their own cars for restaurant business, like catering, there is an option for non-owned auto liability to protect the company in case the employee does not have insurance or has inadequate coverage.
Worker’s Compensation will protect you if an employee is hurt at work. Worker’s Compensation Insurance provides wage replacement and medical benefits to those who are injured while working. In exchange for these benefits, your employees gives up their rights to sue you (their employer) for the incident. As a business owner, it’s important to have worker’s compensation insurance because it protects yourself and your restaurant from legal complications. State laws vary, but all require you to have workers compensation if you have W2 employees and penalties for non-compliance can be very high.
Unemployment Insurance policies are for your employees who no longer work for you until they find employment elsewhere
Depending on your mortgage and financing for your restaurant, you may need to carry a hefty life insurance policy to satisfy your lender. A life insurance policy is also a good idea as a restaurant owner in case something does happen to you. Otherwise your family may be left with a restaurant they don’t know how to run and bills they can’t pay.
Other types of insurance
A Business Owner’s Policy (BOP) is a bundle of services designed for business owners, including restaurant owners. You can tailor the coverage in this package based on your specific needs, and sometimes a business owner will save money by choosing a BOP, because the bundle of services often costs less than the total cost of all the individual coverage’s. Often, BOP’s will include property insurance, vehicle coverage and liability insurance.
As a restaurant owner, there are other types of insurance to consider, based on your location, your rental agreement or mortgage, the types of employees you plan on hiring, etc. These include Loss of Business Insurance, which will help you recoup losses from a specific cause, Food Contamination Insurance, which will help if you lose power and the entire contents of your walk-in and freezer spoil, and Specific Peril Insurance, which will insure you in the case of a natural disaster. Keeping in mind the typical budget of a new or first-time restaurant owner, these extras come with a hefty price tag. They will cost you as much or more than whatever it is you are insuring.
You know the ins and outs of your business (or business plan), and you are in the best position to assess your restaurant’s needs. It is in your best interest to do as much research as you can before meeting with a trusted insurance agent. An insurance agent in your city will know the local and state laws that require what type of insurance small business owners need, and can suggest any additional plans you may want to carry. While the cost of purchasing restaurant insurance may seem like a lot, the penalties for non-compliance are high, and in the event that you need to use your coverage, the upfront costs will seem minimal. And fingers crossed, the upfront costs will also keep any legal entanglements, tornadoes, and any harm to your restaurant at bay. Congrats on your new restaurant!
If you have other questions regarding restaurant insurance, and would like a trusted resource to help you with your research before you meet with an insurance agent who specializes in insurance for small business, the National Restaurant Association’s website is a great resource.