The Complete Guide To Restaurant Insurance

Restaurant insurance is a must-have whether your restaurant is large or small, already in operation, or preparing for a grand opening.

Dedicating time to learning about restaurant insurance could save you from costly mistakes and lawsuits. In addition to essentials such as planning a menu and training staff, it’s also crucial to protect yourself and your business in the event of an accident, injury, lawsuit, or property damage. Mistakes will happen, so it’s best to be prepared.

Read on to learn what business insurance is essential for your restaurant.

Why Do Restaurants Need Insurance?

Every business needs insurance, but restaurants have more than their fair share of opportunities for mistakes, injuries, and business-ending accidents. (Personal anecdote: as a former food service employee, I’ve seen my fair share of horror stories. Nasty foot infections, kitchen equipment charred to bits, chefs leaving their kitchens hanging for weeks due to horrible work-related injuries, bussers toppling towers of drinking glasses at the peak of service…the list goes on. Also, one of my very first tables asked me for ranch for a house salad, and I’m pretty sure I gave them blue cheese dressing. I’m not sure business insurance would’ve improved matters there, but it felt important to share.)

Insurance gives you peace of mind and protects your restaurant against bankruptcy if and when accidents occur. At a minimum, you need insurance to cover your building, potential lawsuits, employee injuries, and any other routine incidents that take place inside a restaurant.

And while it’s impossible to create a list of all the what-ifs, it’s important to consider your business’s potential risks so that you can explore your insurance options and discover the right fit.

How Does Restaurant Insurance Work?

Running a restaurant without insurance is a huge risk — so many different things can go wrong, and there are countless ways guests and employees could wind up hurt. A customer slipped and fell on a floor your employee just mopped? You better have insurance in that scenario because a lawsuit could seriously set you back financially.

Basic Restaurant Insurance Coverages

Here are the coverages you can expect when you purchase business insurance for your restaurant:

• Customer injuries on your property: Did a guest slip and fall in your building like in the example above? Restaurant insurance will cover the legal and medical fees of third-party bodily injury or property damage that your business is liable for.
• The costs of medical bills and recovery for injured employees: Say one of your prep cooks needs a trip to the ER because a knife slipped and caused a deep gash during service, and he/she needs to take six weeks off of work to adequately recover. Your employee’s medical fees and income will be covered with the right insurance.
• Harm resulting from allergic reactions: Let’s face it — new servers won’t be as up-to-snuff on your menu as your cooks and other seasoned front-of-house staff. And if they don’t have much restaurant experience to begin with? That’s an even bigger risk. Insurance will protect you and your customers when food allergies harm your guests.
• Shutdowns and property damage due to natural disasters and kitchen accidents: When your kitchen equipment gets damaged by a tornado or fire, or if the physical damage is so severe that you need to temporarily close your business’s doors, restaurant insurance will cover that.

How To File A Claim

Now, how do you get your insurance to kick in? Follow these steps:

• Pay Your Deductible If You Haven’t Already Done So: Before your insurance policy will cover the accident, you’ll have to pay your deductible. A deductible is an amount you agree to pay to your insurance provider before they compensate you for a covered claim.
• Look Through Your Plan To See If The Occurrence Is Covered: Different insurance packages offer different forms of coverage. A basic business owners policy (BOP) won’t cover an employee injury unless you’ve purchased a workers’ comp plan as an add-on.
• File A Claim Through Your Insurance: You’ll need to record when the occurrence took place and what exactly happened. From there, reach out to your insurance carrier to submit a claim. Your case will then be assigned to a claims specialist to help you through the process.

Renting VS Owning Your Restaurant Building

Insurance comes into play if you’re deciding between renting or owning a restaurant building, too.

For starters, if you’re renting your building, you’re likely going to need business renters insurance added. Landlords consider uninsured renters risky to take on as tenants. Say you experience an interruption in business operations and are temporarily incapable of making any revenue — property owners will expect you to pay rent regardless. As such, they’re going to side with a renter who’s adequately insured. Restaurant insurance can protect the financial interests of both you and your landlord in this case.

The same principle applies if you own your building as well. Acts of vandalism, gas explosions, and electrical fires can harshly depreciate the value of your building and leave you scrambling if the physical damage leaves you and your employees without a place or the tools to work. Even if you’re raking in enough profit to comfortably pay for repairs, having a business insurance policy for your restaurant is simply more cost-effective.

7 Types Of Insurance Restaurants Might Need

The bottom line for all insurance decisions is that your own restaurant is unique and needs a unique package of policies. Some insurance policies are more case-by-case. For example, restaurants that cater and rely on deliveries would want to consider adding a commercial auto package to their insurance bundle. However, the following six insurance types should be considered essential for any restaurant.

1. General Liability

General liability insurance covers your business if you are at fault in an accident or mistake and someone sues you. This pays for legal representation, judgment payouts, or medical bills if someone is injured on your premises. Sometimes called “slip and fall” insurance, this is a must-have for all restaurants.

2. Commercial Property

If you need protection from fire, vandalism, theft, or other natural disasters, commercial property insurance that will cover these risks. Did strong winds push a tree into your building? Has your store become a target for some “fun” spray paint? Commercial property is the insurance needed to handle those claims.

3. Workers’ Compensation Insurance

While general liability protects your customers and provides medical help if they are injured at your restaurant, it doesn’t cover your own employees. You’ll need worker’s compensation insurance for that. Each state has different workers’ comp policies, so be sure to check your state’s laws and regulations. If an employee is injured on the job, this insurance provides medical assistance and income assistance if he/she is unable to return to work.

4. Business Interruption Insurance

If your business has to close because of a disaster or accident, business interruption insurance will cover your lost income or the costs of temporary relocation. This policy could even protect you if a property leader suffers damage or foot traffic is limited to your establishment.

5. Liquor Liability Insurance

If someone consumes alcohol at your restaurant and causes damage as they’re leaving, you may be held liable for that damage. All restaurants that serve alcohol need to invest in liquor liability insurance.

6. Cyber Liability Coverage

If you plan on taking electronic payments, whether through a point of sale system or online, then cyber liability coverage will protect you from lawsuits if thieves or hackers compromise your customers’ sensitive information.

7. Product Liability Insurance 

General liability insurance will cover some, but not all, lawsuits related to product liability.

In this case, your product is your food. However, if your product is risky, extra product liability insurance is a must. Think of it like this: what would happen if lettuce contaminated by E-coli made people from your restaurant ill? Or if salsa with shards of broken glass is served to guests? Without product liability insurance in place to protect your business, these incidents could be the end of your restaurant.

When it comes to all six types of restaurant insurance, finding a great policy boils down to research.

Study the averages for your industry and compare competing rates. Start with an idea of the risks your business might face and arrive equipped and ready for your first meeting with an insurance broker with knowledge of what you need and why. Don’t be afraid to ask questions and ask if specific scenarios are covered under the policies you are looking to purchase.

How Much Does Restaurant Insurance Cost?

After you add up the necessary policies, the cost of business insurance to effectively cover a restaurant isn’t cheap. However, many individual factors are what ultimately make it hard to predict the overall cost.

According to Insureon, the median cost of a business owners policy is only $57 a month, which comes out to $684 a year. And after factoring in workers’ comp and product liability insurance, you can expect to dish out an additional $125 and $70 per month, respectively — those add-ons combined with a BOP will go for a total of about $2,969 annually. The ranges are wide, so check with an insurance expert for a more accurate quote.

In general, the basis of your rate is going to be determined by one of two factors: the square footage of your storefront and your sales.

Insurance carriers that go by square footage are going to charge you a consistent premium throughout the year. And as you likely already know, that may not be great news for your business during slower seasons. Plans that are set by sales offer a bit more flexibility, but you must check with an insurance agent or broker to see if that’s available for your restaurant.

Here are additional things that can affect your premium:

• Your specific restaurant risks
• Whether or not you own your building
• The safety conditions of your restaurant
• How many employees you have
• Your payroll
• The location of your business
• What kind of advertisements you run

When you meet with an insurance expert, discuss if it’s cost-effective to bundle insurance policies. And then go shopping for the best policy! Many sites like Coverwallet, Coverhound, and Insureon will comparison shop for you.

Ways To Save On Restaurant Insurance

Because restaurant insurance may be expensive, you might be looking for ways to cut down on the cost. There are a few ways to make purchasing insurance a bit more manageable.

• Choose A Higher Deductible: Your monthly premium decreases if you choose a higher deductible to pay. (For example, if your deductible is $5,000, then you would pay that much out-of-pocket before your insurance takes over.) The higher the deductible, the lower the premium.
• Buy A Package Or Bundle Policies Together: A business owners policy combines general liability, commercial property, and sometimes business interruption service into one. The BOP is less expensive than if you purchased those policies individually.
• Install A Security System: Just like you can get an auto insurance discount for driving safely, business insurance works the same way. To get a discount on your commercial property insurance, update your security system or install outdoor lighting. This goes for worker’s compensation, too; those rates may be lowered by implementing employee safety procedures and training.

How To Get Restaurant Insurance

Managing insurance is just as important as other restaurant concerns such as acquiring loans, planning a menu, or choosing the best point of sale system. Once you’ve decided to invest in business insurance for your restaurant, you’ll now need to know what type of coverage is best suited for your specific business and the steps to get insured.

1. Determine How Much Coverage You Need

First, gather the necessary business information about your restaurant, such as the square footage of your building, the number of employees, the types of equipment on your premises, and so on. Also, make a list of lawsuit concerns or assets you’d like to protect.

Don’t stop at just a business owners policy. Due to the vast number of risks and possible accidents that could happen — both to your employees and your customers — you’re going to want workers’ compensation insurance and product liability insurance, too.

2. Research The Market

Getting the best deal on your insurance policy means familiarizing yourself with current rates and knowing ahead of time what specific coverage and limits you need. Having this information handy will also help you guide your research as you compare rates.

Commercial insurance is typically sold by carriers you likely already know, such as Progressive, State Farm, and Geico, but others exist (as well as local companies) that specifically address insurance needs for small businesses. Sites like Coverwallet, Coverhound, and Insureon will help you comparison shop business insurance costs. Alternatively, you can contact your local insurance provider to see what commercial plans are available. If you’re already insured, you may be able to purchase additional endorsements through your current carrier.

3. Shop For A Quote

Now for the easy part! Reach out to an insurance carrier once you see a deal that catches your eye. You’ll thank yourself many times over for protecting yourself and your employees.

Good luck as you embark on your restaurant business. Your decision will help you focus on making your business the best you possibly can. When you’re ready to make the insurance leap, read Merchant Maverick’s article on the steps needed to buy insurance.

Restaurant Insurance FAQs