Insurance for Restaurants

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How Insurance and Restaurants Connect

Restaurants are one of the many backbones to society. Although there is a new and growing interesting in home cooking, a large number of people still choose to eat out regularly, with a majority turning to restaurants at least once a week. This creates a lot of competition in the restaurant industry, with many restaurants creatively fighting for customers while developing new and innovative approaches to food service.

However, the benefits of the industry -- a steady stream of customers with different tastes -- can also lead to risks. Restaurant profit margins are among the lowest in any industry, and working with food and customers directly increases the potential for running into a quality assurance issues. Considering the large amount of foot traffic most restaurants experience on a daily basis, as well as the many other risk factors common in the industry, most restaurants should carry several kinds of insurance to protect the various aspects of their business.

Risks Restaurants Face

Restaurants face a number of risks that make carrying different insurance products necessary. As many of these risks are commonly experienced across the entire industry, most are easily covered by only a few insurance products.

The type of risks restaurants face typically include the following:

  • Injury to customers
  • Damage or loss of physical property
  • Equipment breakdown or loss
  • Theft

These are common risks, and your restaurant may experience any one of them. The risk of injury to customers, for example, is perhaps the most common among them. Food poisoning is a common issue, particularly given an increase in food allergies in the past few decades. Many restaurants are taking the proper precautions regarding food ingredient warnings for potential allergens, but it’s almost impossible to cover every instance. Restaurants are routinely sued over mislabeled food items.

Additionally, customers can be injured as a result of other factors in the physical restaurant, such as wet floors or broken glass. These may be simple to take care of, but they can easily result in customer injury and subsequent lawsuits against the restaurant if they’re not addressed quickly enough or the appropriate signage isn’t displayed.

Restaurants also risk the loss of the property and their equipment due to things such as fires, natural disasters or theft. Depending on the geographic location as well, the property may be at more risk for damage due to natural disasters. If the property is lost or damaged and the business must shut down for an undetermined amount of time, the restaurant may never reopen. This situation has resulted in many restaurants closing for good.

Restaurant and Food Business Insurance

There are a number of insurance products that restaurants should consider. These include:

  • General Liability Insurance or Business Owners Policy - Third party claims are common in the restaurant industry, and protect your business in the case a customer or their property was harmed in your restaurant.
  • Business Interruption Insurance - If a storm temporarily shuts down your restaurant’s operations, Business Interruption Insurance will cover losses.
  • Commercial Property Insurance - This coverage helps protect your physical restaurant and the equipment contained within, such as ovens and other cooking equipment.
  • Commercial Auto Insurance - Personal auto insurance policies don’t cover vehicles that are used primarily for commercial purposes. So this coverage is recommended if you use a vehicle to make deliveries or cater.

How Much Restaurant Insurance Costs

Depending on the policies purchased and the restaurant itself, insurance can vary significantly in price. Restaurant owners need to weigh the risks, as choosing a minimalistic policy may save them money in the short term, but can cost them significantly if an unhappy customer decides to take legal action.

Generally, you should be at least protecting your business against property damage and third party claims, and decide on other types of coverage depending on the specifics of your business situation.

What type of insurance does this industry need?

Policy What is it? Why get it Popularity in your industry Want free quotes?
General Liability
This policy protects your business in case of third party claims, such as bodily injury or property damage. For example, the common "slip-and-fall" claim would be covered by your General Liability policy. General Liability insurance is often considered to be the core coverage, particularly for businesses that regularly physically interact with customers or sell physical goods. In addition, many businesses have a contract, like a loan or a lease, requiring that they have this coverage.

What is it: This policy protects your business in case of third party claims, such as bodily injury or property damage. For example, the common "slip-and-fall" claim would be covered by your General Liability policy.

Why get it: General Liability insurance is often considered to be the core coverage, particularly for businesses that regularly physically interact with customers or sell physical goods. In addition, many businesses have a contract, like a loan or a lease, requiring that they have this coverage.

Commercial Property
This policy protects the business's physical assets and is appropriate whether you own or lease your space. Keep in mind that this policy will only offer protection in the case of covered events. If you need protection for certain scenarios, such as floods or earthquakes, you may need additional coverage. If you have a mortgage or a lease, you may be required to have property insurance. Even if you are not, this is the best way to protect the building you are in and the business property you have in case of a natural disaster or some other accident.

What is it: This policy protects the business's physical assets and is appropriate whether you own or lease your space. Keep in mind that this policy will only offer protection in the case of covered events. If you need protection for certain scenarios, such as floods or earthquakes, you may need additional coverage.

Why get it: If you have a mortgage or a lease, you may be required to have property insurance. Even if you are not, this is the best way to protect the building you are in and the business property you have in case of a natural disaster or some other accident.

Liquor Liability
If your business serves an intoxicated patron whose actions result in damages, whether these actions occur on your premises or after the patron has left your establishment, this policy offers your business coverage for the costs of damages and legal defense. The majority of states have dram shop laws which hold a business liable for the actions of a patron if the business served the patron when they were clearly intoxicated. In addition, Liquor Liability insurance is often a lease requirement for bars and restaurants.

What is it: If your business serves an intoxicated patron whose actions result in damages, whether these actions occur on your premises or after the patron has left your establishment, this policy offers your business coverage for the costs of damages and legal defense.

Why get it: The majority of states have dram shop laws which hold a business liable for the actions of a patron if the business served the patron when they were clearly intoxicated. In addition, Liquor Liability insurance is often a lease requirement for bars and restaurants.

Workers Compensation
Workers Compensation covers an employee's lost wages and the cost of resulting medical treatment if they suffer a work-related injury or disease. It also covers services needed to help the employee recover and return to work. Workers Compensation coverage is mandatory in most states. The number of employees after which it's required differs by state, but you will generally need coverage once you have employees.

What is it: Workers Compensation covers an employee's lost wages and the cost of resulting medical treatment if they suffer a work-related injury or disease. It also covers services needed to help the employee recover and return to work.

Why get it: Workers Compensation coverage is mandatory in most states. The number of employees after which it's required differs by state, but you will generally need coverage once you have employees.

Hired & Non-Owned Auto
This insurance protects the business in the case of any incidents involving a vehicle that has been hired by the company to be used for business-related purposes. It also provides coverage in the case your business uses other vehicles which are not property of the business, such as having delivery drivers use their own vehicles. If your company hires vehicles or allows employees to use their own vehicles for business purposes, you will want to consider this insurance.

What is it: This insurance protects the business in the case of any incidents involving a vehicle that has been hired by the company to be used for business-related purposes. It also provides coverage in the case your business uses other vehicles which are not property of the business, such as having delivery drivers use their own vehicles.

Why get it: If your company hires vehicles or allows employees to use their own vehicles for business purposes, you will want to consider this insurance.

Umbrella Insurance
Umbrella insurance offers excess liability protection in the case that your General Liability, Commercial Auto Liability, and/or Employer's Liability coverage is insufficient. It essentially acts as a "back-up" plan, providing additional financial protection in the case that your business faces a particularly large claim that exceeds a single policy's limits. This policy can be particularly valuable for a business that faces a variety of risks and has multiple liability policies.

What is it: Umbrella insurance offers excess liability protection in the case that your General Liability, Commercial Auto Liability, and/or Employer's Liability coverage is insufficient. It essentially acts as a "back-up" plan, providing additional financial protection in the case that your business faces a particularly large claim that exceeds a single policy's limits.

Why get it: This policy can be particularly valuable for a business that faces a variety of risks and has multiple liability policies.

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