How to Insure Your Restaurant (Without Leaving Anything Off the Table)
Running a restaurant carries inherent risks, but these policies will help you stay operational and keep you afloat when the unexpected happens.
If you're starting a restaurant or food services business, you have a thousand different things on your plate – from menu design and decor to staffing and finding suppliers.
With such a huge to-do list, insurance might not even make it into the top 10. But every business faces its unique set of risks, making insurance an essential part of doing business – especially in the food services industry.
In this article, we'll look at the different types of insurance coverage you'll need if you want to make sure your business is properly insured.
Restaurant Risks and How to Cover Them
Food service is a risky business. Not only do you have a lot of foot traffic through your premises, but there's always the potential for customers to get very sick. Insurance is definitely not an area you want to neglect or skimp on when opening your restaurant.
Here are some of the major risks you will face as the owner and operator of a restaurant, along with the types of insurance policies you'll need to mitigate those risks.
Starting your restaurant means investing in furnishings, kitchen equipment, point-of-sale systems, and plenty of ingredients and wine to serve.
Some of this stock and equipment will be very expensive and could benefit from insurance protection.
What You'll Need
To protect your investment in all this stock and equipment, you'll need a commercial property insurance policy. Just make sure you increase your limits and add special coverage if you have some really expensive bottles of wine or alcohol. Otherwise, you might have to pay mostly out of pocket to replace them if anything happens (see Business Insurance: Building, Contents, and Stock to learn more).
When you're serving products your customers will be eating or drinking, there is a huge potential for things to go very, very wrong.
Legally speaking, depending on the type of restaurant you're running, there are two major sources of liability could face: premises and operations liability, and product liability.
- Premises and Operations Liability: This is liability for things that occur on your premises, such as slips and falls, food contaminated with bacteria, or foreign objects (such as small pieces of glass) embedded in the food
- Product Liability: This is liability for things that occur away from your premises, such as a customer ordering take-away from your restaurant and becoming sick after eating it at home
There are also various other types of liability to keep in mind, depending on the type of operation you run. If you serve alcohol, liquor liability comes into play. And if you deliver food, you'll need off-premises liability in case your driver hits someone while out on a delivery run.
What You'll Need
Many of these liability risks can be covered by a commercial general liability (CGL) policy. It will cover all kinds of things, from slips and falls to accidental food contamination.
On top of that, you will also want to purchase special liquor liability insurance if you serve any alcohol. Given how easy it is to trigger a lawsuit, this coverage is essential (find out more in Liquor Liability Insurance: Do You Need It?).
Every business is susceptible to crime losses of various kinds, whether it's theft, stolen data, or embezzlement by employees.
This is a high concern in the restaurant industry, since you and your staff will be handling a lot of cash and transactions, as well as stocking wine bottles expensive items that are small and portable and, therefore, easy to steal.
What You'll Need
Given what you could lose from theft alone, it's worth getting a crime insurance policy.
When you purchase one, make sure that it also includes coverage for employee dishonesty. You might not think your own staff would steal from you, but it happens more often than most people realize (learn more in Inside Jobs: How to Prevent Employee Theft).
So much of your equipment is essential for the basic functioning of your business.
What happens when your walk-in freezer is damaged and your stock of ingredients spoils?
What if you're setting up one morning and you discover that your expensive range or stove top is damaged and won't turn on?
And what if the roof is severely damaged and you're dealing with fallen ceiling tiles or a serious leak?
In those cases (and others like them), you're likely to have to keep the restaurant closed and cancel reservations until the problem is fixed. If you're lucky, you'll be open again the next day. But if the damage is bad enough, it could be weeks.
During that time, you won't be bringing in any revenue, but that doesn't mean your expenses go on pause. You'll still have to pay rent, keep staff, and so on.
What You'll Need
These events can be devastating to your business and its profitability, so it pays to have business interruption insurance.
This type of coverage will pay for your loss of income if you're unable to operate your business due to damage to your business property.
Unless you have this type of insurance or a huge pile of cash stored up in the bank for emergencies, even a short-term interruption to your business could be enough for your restaurant to go belly up.
To recap, here's the insurance coverage you'll need to make sure you have the right kind of protection for your restaurant:
- Commercial property insurance
- Commercial general liability insurance
- Liquor liability insurance
- Crime insurance
- Business interruption insurance
Many insurance companies offer package policies for restaurants. These bundle together all the coverage you need into one convenient contract. Still, it's worth consulting a trusted insurance advisor just to be sure you're getting the coverage that is best for you and on terms that really work for your business.
I realize this is a lot of coverage, but running any kind of business comes with inherent risks. The good news is that by getting these policies lined up, you'll go a long way to ensuring that your business stays open and profitable, even if you have to face some of these issues.