In the restaurant industry, an ill-timed accident or legal action can financially cripple your business. To ensure that the cost of doing business isn’t the business itself, you need comprehensive and reliable insurance.
To simplify what probably looks like a minefield exercise for you, we’ve put together a brief guide to getting your restaurant properly insured. Let’s take a look at what your insurance coverage options are for your restaurant.
Types of Insurance for Restaurants
It is important to take a systematic approach to weighing the many insurance coverage options for your restaurant. Here is a breakdown of the types of insurance you should consider:
(*We have marked items required by US law with an asterisk. Be sure to discuss the insurance requirements for your industry, as dictated by national and state law, with your broker.)
Commercial Property Insurance
There are many ways the property housing your restaurant can be damaged during the course of business. Kitchen fires, burst pipes, damages from storms, theft and vandalism are all possible events that can take place at your restaurant. The right commercial property insurance will help you pay for these types of losses and offer protection to your restaurant building and its contents.
Business Income / Business Interruption
If your restaurant needs to shut down for repairs, your expenses will obviously go beyond simply having those repairs done. You will need to be covered for the income you lose during your restaurant’s downtime. This is what business income (also referred to as business interruption) insurance is designed for.
Utility Interruption & Sewer Damage
Think of what would happen if the gas, internet, phone line, water or electricity supply to your restaurant were to be interrupted. It could result in a lot of expensive damages and force you to shut down while the repairs are being made. Insurance for this, a fairly common and unavoidable hazard, is therefore essential.
The same can be said for the potential fallout that would happen if a blocked sewer had to back up into your restaurant. Typical commercial insurance for a property excludes sewer backup coverage, so be sure to seek out a policy that covers it or allows you to add it as an addition to your coverage.
Spoilage / Food Contamination
As a restaurateur, you’ll know that one of the worst things that can happen in the kitchen is for the food in your refrigerator or freezer to go bad. This might be because of an interruption in your electricity supply, breakdown of equipment, or unforeseen exposure of food items to contaminants.
You should ensure that your insurance covers the spoiled goods as well as whatever issue may have occurred to cause this spoilage. This type of restaurant insurance protects you from losing money on food you never use. Some kinds of food contamination and spoilage insurance also covers employee medical testing and equipment cleaning costs if your restaurant closes because of food contamination.
As already mentioned, a non-functioning fridge or freezer can be really problematic for the functioning of your restaurant. The same applies to your stoves, ovens, and other essential equipment. To ensure that equipment breakdowns don’t cost you your business, you should get the right restaurant insurance that covers it.
Electronic Data and Equipment
Most businesses these days could not function without computer technology. Whether you use computers to store crucial information, process payments, manage staff, or anything else, your restaurant would come to a standstill without it.
Some commercial property insurance policies provide next to no coverage for damages to electronic equipment or data losses. Adding this kind of cover should be a major consideration if you want comprehensive insurance for your restaurant.
Commercial Auto Insurance
Any motor vehicles used for carrying out your restaurant’s business activities need to be covered by commercial auto insurance. This may include food delivery motorbikes and cars, or vehicles used to collect ingredients and supplies. Your business auto policy should cover any vehicles owned by the business, as well as any hired vehicles or outside vehicles used for business purposes.
(Commercial auto insurance will be a good fit to your startup delivery service business!)
Theft by Employees
Having goods stolen by employees is never a pleasant experience, no matter what industry you’re in. But unfortunately, it happens. In fact, The National Restaurant Association estimates that internal employee theft is responsible for 75% of inventory shortages and about 4% of restaurant sales.
Be sure to get this covered by making sure your restaurant insurance covers employee theft. That way, if any of your workers help themselves to your cash, food or equipment, your business won’t have to foot the bill.
Insurance Coverage For Peak Season
Generally, in all divisions of the hospitality industry, reaching your annual turnover objectives is highly contingent on peak season performance. This is when you can recoup any losses you may have sustained during quieter parts of the year. The festive season, for example, is the busiest time for most restaurants.
When your restaurant is at its busiest is when you can least afford to have things go wrong. The damage incurred by something like a broken freezer during peak season would be significantly greater than if this were to happen at a quieter time of the year. Your insurance coverage should reflect this reality with boosted cover during peak season.
Perhaps an unforeseen event like a fire or hailstorm has not prevented you from doing business entirely but has made you look for a new approach. This may include temporarily operating from a different location, hiring additional staff, or renting additional equipment.
If this is the case, then it’ll be a relief to have restaurant insurance coverage to pay for these additional expenses. Think about what that sort of scenario would look like for your restaurant and what kind of additional expenses it would entail.
While you’re taking stock of all your possessions and needs for insurance purposes, you may come across items that do not fit under any of the typical policy categories. For example, you may have rare and expensive art pieces in your restaurant décor or antique furniture.
If these special items can’t be insured together with the rest of your property, you will need to make additional arrangements. For example, you may need to take out fine arts insurance in addition to your other restaurant insurance.
General Liability Insurance
Like most establishments, your restaurant likely displays disclaimers renouncing liability for damages to persons or property sustained on your premises. Do not assume that this will guarantee the prevention of legal action being taken against you.
Also called third-party insurance, general liability insurance will cover you against claims arising from injuries, accidents, food poisoning, damages to rented premises, and the like. Analyze your general liability policy’s contents to ensure your risks are adequately covered.
Unfortunately, getting sued is a universal risk of doing business. So it is vitally important that you are covered if legal action is taken against your business.
Liquor Liability Insurance
It’s highly likely that your general liability policy does not cover damages inflicted by intoxicated persons on your premises. If your restaurant serves alcohol, and an inebriated customer causes damage to another customer’s person or possessions on-site, you may be sued for contributing to the situation. So you should definitely take out additional liquor liability insurance.
Automobile Liability Insurance*
Third-party automobile insurance is a type of liability that covers claims against automobile-related damages or losses sustained by someone other than the insured (you).
This third party may be an employee driving a business vehicle, the driver of another vehicle involved in an accident with your business vehicle, or even a pedestrian knocked over by your business vehicle.
This type of insurance might sound similar to commercial auto insurance but there is a key difference. Commercial auto insurance covers the cost of damage to your commercial vehicles and accessories. On the other hand, automobile liability insurance pays for property damage and/or injuries to someone else or their property while operating your vehicle. Having both types of automobile insurance will ensure you’re fully covered in the event of an accident.
Employment Practices Liability Insurance
Also known as EPL insurance or EPLI, this type of insurance covers any legal action taken by employees against your business. This may include claims of wrongful termination, discrimination, harassment, and personal injury, among others.
Workers’ Compensation Insurance*
Workers’ comp covers the wages and most medical bills of your employees if they suffer a work-related injury. It can cover medical bills, lost income, and even death benefits. This is a crucial type of insurance for any company in the food and beverage industry to have. As such, workers’ comp coverage is legally required in every state but Texas.
US law dictates that you must contribute to unemployment insurance for all of your employees. This type of state-provided insurance ensures that employees continue to receive some form of income in the event that they are unable to work. Consult a labor expert to ensure that your restaurant is compliant with unemployment insurance regulations.
Special Note: Business Owner’s Policy
If your business has fewer than 100 employees, you should be able to obtain a business owner’s policy (BOP). This is an insurance package for small businesses that combines property and general liability insurance.
A BOP may be an ideal alternative to having each of these areas covered separately, as it will likely save you money. In addition to the reduced cost, BOPs often cover items not typically included in other standard insurance options.
The disadvantage of BOPs is that they aren’t as flexible as other types of cover, although they can be altered with additional endorsements. So be sure you are comparing apples with apples when you weigh the pros and cons of a BOP versus other insurance options.
Collect Documentation and Find a Broker
Finalizing your restaurant’s insurance is definitely not a task you should undertake without the assistance of a knowledgeable and trustworthy broker. If possible, ask fellow restaurant owners for recommendations regarding brokers and insurance providers.
Once you’ve selected your broker, ask them which documents and information they will need from you so you can come to your appointment prepared. Information your broker will probably need in order to source insurance quotes for you includes the following:
- Size of your restaurant’s premises in square feet
- Type and age of these premises
- The nature of your fire prevention and/or security systems
- Forecast of annual turnover and number of customers
- Inventory of restaurant equipment
- Value of stock and equipment (including technology and vehicles)
- Number of employees
- Nature of activities on-premises
- Operation hours
- Level of coverage required
- Details of property lease or ownership
As you finalize your insurance coverage, be sure to double-check the fine print of all policy documents. This way, you can rest assured that you are fully covered and won’t be blindsided by any nasty surprises down the line.
Lastly, since the only constant in life is change, be sure to reassess your restaurant’s insurance coverage regularly to ensure that it still meets all of your needs.