Table of Contents
- Do I Need Insurance to Open a Restaurant?
- Common Concerns About Getting Restaurant Insurance
Many fun decisions come with opening your restaurant – what cuisine you will serve, how you will design your space, what the atmosphere will look like – the list is seemingly endless!
Your head might be spinning with all the details, so we are here to remind you of another important question: Do I need insurance to open a restaurant? Yes, you do!
We have put together a quick and easy guide to getting restaurant insurance.
Do I Need Insurance to Open a Restaurant?
The short answer: Yes! Insurance protects you, your restaurant, and your assets.
Why Do I Need Insurance to Open a Restaurant?
You need insurance to open a restaurant to cover the cost of your physical space and possessions in the event of a loss and protect yourself if someone decides to sue your business.
Most states require at least some insurance policies, such as workers compensation to protect your employees, liquor liability policies related to selling alcohol, and other general liability policies to protect others whom your restaurant might inadvertently harm.
What Types of Insurance Do I Need?
Here’s a quick rundown of the most important policies to consider when getting restaurant insurance.
General Liability Insurance
General liability covers you for damages and associated legal fees that might occur from a customer suing your restaurant. You generally want to have enough liability insurance to protect your assets if someone “sued you for all you were worth.”
Commercial Liability Umbrella Policy (CLUP)
This policy goes hand in hand with the General Liability Policy that we just mentioned. It provides additional liability coverage in case a lawsuit exceeds the costs in your general liability insurance policy. Insurance companies generally sell these in increments of one million dollars.
A CLUP policy will cover additional costs associated with ALL lawsuits against your business, whether they are associated with the business premises, a company vehicle, or other underlying risk factors.
Commercial Fire/Property Insurance
Property insurance covers your restaurant’s physical possessions. This coverage might apply to the building where you operate (if you own it) or just your personal property inside.
Workers Compensation Insurance
Workers Comp pays the salary and related medical bills for any of your employees injured on the job. Most states will require you to have this, but even if yours doesn’t, it’s still a good idea.
Food Contamination Insurance
This lesser-known but critical policy covers any food you need to throw away due to contamination, which unfortunately can happen to even the most careful restaurants.
Business Interruption Insurance
This policy will cover your lost income if your restaurant needs to close temporarily, taking some of the pressure off when your bills come due before you reopen.
Commercial Auto Insurance
You need this if you have any business-owned and operated vehicles, such as a delivery van. It is like your regular car insurance but applies to your business vehicles.
You need this policy if you are planning to serve liquor in your restaurant. It covers any damages and associated legal costs relating to alcohol served in your restaurant.
Key Person Life
Key Person Life is a nice-to-have policy if your restaurant will rely heavily on one individual, such as a head chef. Then, in the event of their death, the policy will provide you with the money to stay in business while you find their replacement.
Common Concerns About Getting Restaurant Insurance
How to Get Restaurant Insurance
The first step in getting insurance is to reach out to different insurance companies and request quotes for your restaurant. Remember that a price quote is an estimate and can change after the insurance company investigates the restaurant itself.
Be ready to answer the following questions:
- What type of restaurant will you operate, and what services will you offer?
- Do you own the building? Square footage? Location?
- What are your projected sales for the first year?
- Will you serve alcohol?
- Will your restaurant own and operate any vehicles?
- How many employees will you have? What is your projected payroll?
Once you receive your quotes, you can choose the policy that best fits your needs, make your first payment, and boom – you have restaurant insurance!
One quick tip about price quotes: Make sure that you are comparing “apples to apples.” Meaning that you receive quotations for the same coverage from each company. For example, one company might give you a significantly lower quote but include far less coverage than another. So figure out how much coverage you want FIRST and request a quote for that amount from each company.
How to Budget for Restaurant Insurance
Your insurance cost will vary based on many factors, such as:
- Restaurant Details (Size, Services, Projections)
- History & Experience of Restaurateur
In addition to these factors, you can expect to pay differing amounts for each type of policy and the amount of coverage that you have within each one.
In general, you should expect to pay between $4000 and $20,000 annually, excluding a key person life insurance policy. We excluded the life policy because they can range from $300 to $24,000 annually, depending on the health of the person insured.
$16,000 is an extensive range to consider in your budget. However, we cannot accurately nail down a more specific price range without considering the details of your particular restaurant. Therefore, the best thing to do is to receive a few quotes when building out your budget to ensure that you set aside an appropriate amount for insurance costs.
Remember that your insurance cost can change from year to year as your restaurant grows and changes. So be prepared to be re-rated by the insurance company periodically.
How to Make Sure that you Have Enough Coverage
Restaurateurs sometimes lack adequate coverage in the event of a loss. Meaning, you place a claim and don’t get enough money to help you through whatever event caused you to place the claim.
Our best advice to avoiding this is to sit down, look at your financials, and make sure that you have enough coverage in place to cover the following aspects of your business:
- Liability Coverage: Enough to cover ALL your assets (money)
- Property Coverage: Enough to cover the cost of your building (if owned) and your possessions essential to operating your restaurant
- Commercial Auto Coverage: Enough to cover your business vehicles’ “blue book” value and liability to cover ALL your assets. Remember, your liability umbrella policy will also cover your car.
Now that you have your restaurant insurance squared away, it’s time to get that business open! Once you have your insurance policy in place, you can proceed to know that your restaurant is protected from unplanned accidents or losses.