Starting a restaurant comes with more risk than many businesses. The best way to protect a restaurant from unexpected damages is getting insurance that covers injuries to personnel, lawsuits, and other liabilities. The types of insurance for restaurants to choose from vary depending on the common risks the business faces regularly. Here are the costs involved with restaurant insurance.
Risks That Restaurants Face
According to CNBC, approximately 60% of new restaurants fail in the first year, with about 80% closing within five years. The high failure rate is due to the many risks associated with operating a restaurant. Here are the risks that restaurants face.
- Property damages and theft
- Lack of cash flow
- Cyber security breach
- Injuries to consumers or employees
- Improper food storage
- Food-borne illnesses
- Problems with licensing and certification
- Bad reputation
The types of insurance to purchase vary depending on the level of risk. Issues that can affect the cost of insurance include:
- Value of equipment inventory and contents
- Number of employees
- Security and fire systems
- Average annual revenues
- Claims history
- Age and type of the building
- Years in business
Types of Insurance for Restaurants
General Liability Insurance
General liability is a policy that protects restaurants from many things, including food-borne illnesses and accidents, food poisoning, legal fees when a customer falls or slips on the property, legal fees resulting from libel or slander accusations, and damages from medical expenses and medical bills incurred by customers.
Commercial Property Insurance
Commercial property is an insurance policy considered the most important since it’s tied to the physical property where food is being prepared, consumed, and purchased. Commercial property insurance covers restaurant space, equipment, signage, furniture, and any other vital property for the business.
Insurance providers can tailor the coverage to fit a business’s specific risks. For instance, the policy should cover such circumstances if the restaurant is located where landslides, wildfires, or earthquakes occur regularly.
If the property is leased, the chances are that the building owner already has property insurance. But it’s still necessary to get the policy to protect contents such as inventory, furniture, and equipment.
Business Owner’s Policy (BOP)
Business owner policy combines all the protection related to liability and property risks. Many restaurant owners prefer to combine commercial property insurance and general liability insurance by choosing a business owner’s policy. The cost of this type of policy is determined by:
- The location of the restaurant
- Value of the property
- Equipment used
Workers’ Compensation Insurance
Workers’ compensation insurance is mandatory in every state. The policy covers employees who are injured or ill due to job-related activities. The coverage pays for:
- Lost wages
- Medical expenses
- Disability benefits
- Rehabilitation costs
- Death benefits
Liquor Liability Insurance
Most restaurants sell alcohol as part of their operations. Liquor liability insurance protects restaurant owners if they serve intoxicated patrons. These patrons may end up damaging property or causing harm to others or themselves.
Apart from the above types of insurance, some restaurants can benefit by expanding coverage. For example, if the business involves the transportation of food-related goods or food-related machinery and equipment. Here are additional insurance coverages to consider:
Spoilage Insurance: Covers a restaurant if utility service malfunctions causing inventory losses and damages.
Equipment Breakdown Insurance: Covers the cost of repairing broken equipment or replacing damaged equipment.
Business Interruption Insurance: Covers unforeseen circumstances where a restaurant hits the bottom line. Business interruption insurance will provide a ”business income” to reduce the risk of shutting down.
Commercial Auto Insurance: Offers coverage in case of bodily injuries and car accidents from collisions.
The Cost of Restaurant Insurance
The amount to pay for restaurant insurance varies depending on the type of clientele, business size, nature of the restaurant, and what is served. Every restaurant faces different risks, which means there is no specific cost for all restaurants.
- General liability insurance costs around $500 to $2,500 per year. The annual payment is roughly $900.
- Workers’ compensation insurance costs around $2,080 per year. The monthly payment is roughly $175.
- Business owner policy costs around $1,100 to $10,500 per year. The annual payment is roughly $2,160.
- Liquor liability insurance costs around $350 to $3,000 per year. The annual payment is roughly $620.
Most restaurant owners pay approximately $4,000 for workers’ compensation insurance, liquor liability insurance, and business owner’s policy. The total cost of restaurant insurance depends on related policies and the coverage needs of the owner.
Choose the Best Insurance for Restaurants
Purchasing insurance for restaurants is a legal obligation. The best and most cost-effective way to reduce these risks is to buy a comprehensive insurance policy.
The law does not need restaurant owners to have all types of insurance, but some are mandatory. General liability, workers’ compensation, and commercial property insurance are the most common restaurant insurance coverages. Having a few others is crucial to mitigate the risks of running a restaurant.