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What Is Restaurant Insurance and How Much Does It Cost?

Given the low profit margins, high turnover, and tough competition in the food and beverage industry, owning a restaurant is definitely one of the most challenging forms of business ownership. And with these challenges, it’s all the more necessary that you find and purchase the right small business insurance.

As with any type of commercial insurance, restaurant insurance can help protect your business and mitigate some of the inherent risks that are associated with this industry. This being said, however, you’ll find that when it comes to restaurant insurance, there are not only many different policies to consider, but the costs you’ll face are often greater in comparison to other industries.

In this guide, therefore, we’ll break down the types of restaurant insurance you’ll want to purchase, as well as estimate the costs you can expect with each type of policy—so you have all the information you need to properly protect your small business.

What Is Restaurant Insurance?

First and foremost, it’s important to clarify that there is no single type of restaurant insurance. Although some insurance providers may specialize in working with and offering solutions for businesses in the restaurant industry, your restaurant insurance coverage can include a variety of different policies that are available to other types of small businesses as well.

At a minimum, it’s likely that you’ll want to have general liability insurance and commercial property insurance for your restaurant, which can often be bundled into a business owner’s policy (BOP) to make coverage more affordable. Additionally, if your restaurant has employees, you’ll be required by law to purchase workers compensation insurance.

Finally, as we’ll discuss below, there are a handful of other types of insurance that can be helpful as you run your restaurant. Ultimately, however, it will be up to you to decide what coverage you need.

Types of Restaurant Insurance

When you’re searching for restaurant insurance, these are 10 different policies that you’ll want to consider purchasing:

1. General Liability Insurance

General liability insurance will protect your restaurant from a wide variety of losses, including bodily injuries, medical claims, property damage, and advertising injuries. People normally associate general liability insurance for a restaurant with slip and fall incidents, but that’s just the beginning.

If your restaurant signage damages the window of the shop next door, then your general liability policy will cover the damages. Similarly, you’ll be covered if you run a Facebook ad, and a competitor restaurant claims you’re unlawfully using their logo. 

2. Commercial Property Insurance

Commercial property insurance protects your restaurant’s premises against different types of damage. Restaurants are more likely than other small businesses to incur certain types of property damage. For example, nearly 8,000 restaurants per year suffer from fires[1] due to grease traps, gas leaks, and faulty wiring. Without commercial property insurance, a fire could set you back thousands of dollars. 

Commercial property insurance will also come to your aid if a customer steals from your restaurant or if your restaurant point of sale system experiences disruptions. If you refrigerate items at your restaurant, you can add spoiled goods coverage to your property policy.

3. Business Interruption Insurance

Many small business owners are unaware of business interruption insurance, but this can save your restaurant when you need help the most. If your restaurant experiences a fire or other natural disaster, it’s not just the damage to your property that needs to be fixed.

Depending on the extent of the damage, your restaurant might also be out of commission for a while until the damage is fixed. During that time, you could lose hundreds, even thousands, of dollars. Business interruption insurance reimburses your company for the income that’s lost until you’re up and running again. 

4. Equipment Breakdown Insurance

Equipment breakdown coverage protects your restaurant if a key piece of equipment—stove, oven, refrigerator, etc.—fails and your restaurant’s service capacity takes a hit, causing a loss of income. This type of restaurant insurance pays to repair or replace malfunctioning equipment, and you can also get reimbursed for lost income.

In addition, equipment breakdown coverage can even be used to mitigate the costs of mandatory safety and hygiene inspections, which are common in the food and beverage industry.

5. Commercial Auto Insurance

If your restaurant uses vehicles to deliver prepared food, ingredients, or supplies, you should purchase commercial auto insurance. Except in New Hampshire and Virginia, all other states require drivers to carry adequate auto coverage. 

If you use your personal vehicle to make restaurant deliveries, or for other business purposes, your personal auto insurance won’t cover you. You need separate commercial auto insurance to cover injuries to the driver and passengers, as well as damage to other drivers and property.

Optionally, you can also purchase coverage for roadside assistance, collision damage, and rental car reimbursement.

6. Liquor Liability Insurance

The stakes for restaurant insurance are even higher if you sell liquor. Dram Shop Laws, which make a business liable for serving a customer who is already inebriated, exist in 30 states. If a patron gets drunk at your restaurant and later gets into a fight or causes an accident, the injured party could sue your restaurant.

General liability insurance won’t cover liquor-related incidents, so it’s best to buy specific liquor liability insurance or add it as an endorsement to your general liability policy.

7. Crime and Employee Dishonesty Insurance

Unfortunately, employee theft is common in the restaurant industry, accounting for $3 to $6 billion of losses annually[2]. Commercial property insurance guards against customer theft, but not employee theft.

To cover employee theft, you need commercial crime insurance or employee dishonesty insurance. This insurance also covers credit card and check forgery, as well as computer fraud. Prevention is the key to stemming these types of incidents at your restaurant, but it’s also wise to insure yourself against these possibilities.

8. Employment Practices Liability Insurance

Employee turnover levels are notoriously high at restaurants, topping nearly 75% according to the National Restaurant Association[3]. Businesses with high turnover face more employee lawsuits alleging discrimination, harassment, or wrongful termination.

Not only can such legal claims be costly, but they can also take months—sometimes years—to settle or wind through the courts. Therefore, employment practices liability insurance (EPLI) can help you gain more control over these claims. If your company is sued, the insurance carrier will provide a lawyer for your defense and cover legal and court costs.

9. Workers Compensation Insurance

As we mentioned above, if your restaurant employs cooks, wait staff, hosts, or other employees, you’ll need to buy workers compensation insurance. Besides Texas, every state requires businesses with employees to purchase workers compensation coverage.

If an employee gets hurt or sick on the job, workers compensation insurance will pay for their medical treatment and usually, help protect your business from related lawsuits.

10. Business Owners Policy 

Again, as we mentioned briefly above, a business owners policy can combine several types of restaurant insurance in a single policy. A BOP typically combines general liability insurance, property insurance, and business interruption insurance into one policy for a lower premium than you’d pay if you purchased each policy separately.

You can also add on EPLI, equipment breakdown coverage, or crime insurance to a BOP, depending on the insurance carrier’s offerings. Many carriers offer industry-specific BOPs with coverage designed specifically for restaurants.  

Restaurant Insurance Costs

Now that you have a better sense of the types of coverage you might need to purchase, let’s break down restaurant insurance costs. Overall, the price you’ll pay for your restaurant insurance will vary based on a number of factors:

  • Number of policies
  • Amount of coverage
  • Years in business
  • Number of employees
  • Annual revenue
  • Number of customers you serve annually
  • Value of your inventory, supplies, equipment, etc.
  • Location of your restaurant
  • Prior claims history

As we mentioned above, due to the different types of insurance a restaurant may require and the high risks associated with this industry, you can see how restaurant insurance costs can quickly add up.

This being said, it can be helpful to look at typical costs based on the policies you may need—this way, you can more accurately estimate what restaurant insurance will cost for your business.

Summarized Annual Restaurant Insurance Cost by Type of Policy [4][5]

Type of Restaurant InsuranceEstimated Annual Premium
$805
$755
$1,200
$30
$1,960
$545
$300
$2,185
$1,480
$2,080

General Liability Insurance Cost for Restaurants

According to Insureon, restaurants pay a median of $805 per year, or about $67 per month for general liability insurance. With this type of restaurant insurance, the cost you pay on an annual or monthly basis (your premium) will vary not only on the factors we listed above, but also based on the amount of coverage you opt for.

Typically, most businesses choose a $1 million / $2 million policy for general liability insurance—which means the insurer will pay up to $1 million for each covered claim, up to a total of $2 million while the policy is valid.

This being said, although some insurers will require a deductible, in other words, the amount you must pay out of pocket before you can receive coverage, liability for restaurants (as well as other businesses) often have a $0 deductible.

As an example, if you purchase restaurant liability insurance from Next Insurance, you’ll have three options[6]:

  • Basic: $500,000 limit, $500,000 aggregate, $0 deductible
  • Pro: $1 million limit, $1 million aggregate, $0 deductible
  • Pro Plus: $1 million limit, $2 million aggregate, $0 deductible

The cost of restaurant insurance from Next starts as low as $25 per month.

Commercial Property Insurance Cost for Restaurants

Whereas restaurant insurance costs for a general liability policy are relatively straightforward, commercial property costs will vary much more based on the property you’re looking to cover and how much it’s worth.

In this way, your restaurant’s location, physical space, inventory, equipment, supplies, etc. will play much more of a role in determining how much you pay. This being said, however, according to Insureon, the median amount a business pays is $63 per month, or $755 per year with a limit of $60,000 and a median deductible of $1,000.

With commercial property insurance, you’re much more likely to see a deductible than you are with general liability insurance. In other words, using the median cost example from Insureon, you’d need to spend $1,000 out of pocket to replace or repair your business property before your policy would kick in.

Generally, as we’ll discuss in greater detail below, the most affordable way to pay for both general liability insurance and commercial property insurance for your restaurant is to bundle these policies into one customized BOP.

Business Interruption Insurance Cost for Restaurants

Because business interruption insurance protects your restaurant in the event of lost business, you’ll find that costs are much higher with this type of insurance. In general, the higher the risk in your industry and the higher your revenue, the more you’ll pay on an annual or monthly basis of business interruption insurance.

With this in mind, the average cost of a business interruption insurance policy is $1,200 per year[7], so as a restaurant, you’ll likely see costs around or above this average. Additionally, if you want higher coverage limits—in other words, a policy limit of $2 million instead of $1 million, this will increase your premium as well.

Equipment Breakdown Insurance Cost for Restaurants

Of all of the restaurant insurance costs, equipment breakdown insurance will likely be the most affordable type of policy. Overall, this type of insurance is insured based on the value of your equipment—typically, $0.015 to $0.03 per $1,000 worth of equipment.

Based on that estimation, if you’re looking for a policy to cover $1 million worth of equipment, you’ll only be paying $15 to $30 per year for this coverage ($1 million x $0.015 or $0.03).

Commercial Auto Insurance Cost for Restaurants

Unlike equipment breakdown insurance, commercial auto insurance can be one of the most expensive types of policies for restaurants. This being said, however, if your restaurant delivers food, this type of coverage is important.

According to Insureon, the median cost for commercial auto coverage for food and beverage businesses is $1,960 per year, or $165 per month[8]. Of course, the ultimate price you’ll pay will depend on the value of the vehicle, how much your employees drive, and the specific coverage you choose.

To this point, if you opt for comprehensive coverage, in other words—coverage that includes bodily injury and property damage, collision, medical payments, and uninsured or underinsured motorist bodily injury, you’ll be paying much more for this policy that for a policy that only covers bodily injury and property damage.

Similarly, with commercial auto insurance, the higher the deductible, the lower your premium, and vice versa.

For example, if you opt for a $1 million liability policy with a $1,000 deductible, your annual cost will very likely be lower than if you opt for a $1 million policy with a $500 deductible.

As you can see, commercial auto insurance is not only one of the most expensive types of restaurant insurance, but also one of the most complex as well. Therefore, if your restaurant needs this type of liability insurance, you’ll definitely want to talk to an expert about the different types of coverage and what’s best for your needs.

Liquor Liability Insurance Cost for Restaurants

Similar to general liability insurance, the cost of liquor liability insurance for restaurants is typically very straightforward.

According to Insureon, the median cost of this type of restaurant insurance is $545 per year, or about $45 per month. Generally, like traditional liability insurance, the most common policy limit is $1 million.

As you can see, therefore, liquor liability is one of the more affordable types of restaurant insurance—plus, many companies that work within the food and beverage industry offer liquor liability as part of a business owner’s policy—allowing you to bundle this restaurant insurance with other coverage.

Crime Insurance Cost for Restaurants

When it comes to crime insurance, your annual costs will largely depend on factors like the number of employees you have, your annual revenue, the value of your assets, industry, type of coverage, etc. As we mentioned above, employee theft is common in the restaurant industry, so you might see prices higher than in other industries.

This being said, a crime insurance policy usually costs about $300 per year ($25 per month) for $100,000 worth of coverage. As you can see, this is one of the lower estimates for restaurant insurance cost—but again, this price can vary, and may very likely be higher for many restaurants.

In addition, it’s important to mention that like commercial auto insurance, your costs will also vary depending on your coverage and your policy limit. If you want a fully comprehensive policy that even includes something like kidnapping coverage, you’ll pay more than you will for a policy that only covers employee theft.

Moreover, crime insurance is likely to have a deductible—so if you opt for a higher deductible, you can access a lower premium—but you’ll also have to pay more out of pocket before you receive coverage. Finally, it’s also worth noting that some insurance companies will allow you to add crime insurance to a BOP, or as an endorsement on your general liability policy.

Employment Practices Liability Insurance Cost for Restaurants

When it comes to employment practices liability insurance, the cost for a restaurant will depend on the size of your business, as well as the number of employees you have.

According to Insureon, the median cost for EPLI is $2,185 per year or $182 per month[9]. As you’ll see with workers comp below, typically insurance policies that relate to your employees are more expensive than other types of restaurant insurance.

This being said, similar to commercial auto insurance, your EPLI policy can vary greatly not only based on the size of your business and your employees, but also based on your coverage and policy limits. The more coverage you want, the higher your limit, the higher your premium will be.

With this in mind, the median generic limit for this type of insurance is $1 million, with a deductible of $5,000.

Workers Compensation Insurance Cost for Restaurants

As we mentioned above, if you have employees, you’ll more than likely be required by law to get workers compensation insurance.

Unlike most of the other types of restaurant insurance we’ve discussed, however, workers compensation costs are a little different. Generally, workers compensation is priced for every $100 of payroll. You might see $0.12 per $100 of payroll for administrative employees, with prices varying based on the industry.

To calculate workers compensation costs for your restaurant, therefore, you’d take the base rate, $0.12/100 in the example we used above, multiplied by your total payroll, multiplied by an experience modifier, which is most commonly 1. Your experience modifier, however, will depend on your previous claims history—the more claims you’ve had in the past, the higher your modifier, and thus, the higher your premium.

So, using this formula, you might have 0.0012 x $100,000 x 1= $120 per year, or $10 per month. This is just an example, however. According to Insureon, the median cost of workers comp for a restaurant is $125 per month, or $1,480 annually. Of course, these costs will vary due to your state, payroll, previous claims, etc.—but typically, restaurants will see higher rates in comparison to businesses in other industries.

Business Owner’s Policy Cost for Restaurants

Finally, let’s talk about restaurant insurance costs for a business owner’s policy, otherwise known as a BOP. As we’ve mentioned throughout this guide, a BOP allows you to save money on your business insurance—instead of paying for separate policies with individual premiums, you’re paying a single premium for a bundle of policies together.

Again, the types of policies included in a BOP can range based on the provider and your needs, but generally, you’ll see general liability insurance, commercial property insurance, and business interruption insurance bundled in a BOP. For restaurants, in particular, many companies also include liquor liability insurance in this coverage.

This being said, as you might imagine, the cost of a BOP will vary greatly based on the extent of your coverage, the types of policies that are included, as well as the specifics of your restaurant. According to Insureon, however, the median cost for a BOP for restaurants is $2,080 per year, or $175 per month.

Typically, the policy limit on a BOP is $1 million per occurrence (similar to general liability insurance) with a policy deductible of $1,000.

Although this may seem high, if you consider the many policies that are included in that single cost, it will generally be more affordable than purchasing the policies separately.

The Bottom Line

At the end of the day, restaurant insurance can be costly, but it’s essential to protecting your business from the unexpected. Plus, the price of not having insurance is usually much higher than the cost of buying different coverages.

This being said, however, if you’re looking to mitigate your restaurant insurance cost, you can follow these tips:

  • Only buy the coverages you need: Not all of these coverages apply to every restaurant owner. For instance, if you don’t transport food or supplies in your vehicle, you don’t need commercial auto coverage. And some states don’t mandate workers compensation coverage until you hire several employees.
  • Try a BOP: As we’ve explained, a BOP combines several critical coverages into a single policy. You’ll pay a lower price for the package deal than if you were to purchase each coverage separately.
  • Consider your deductible carefully: Most business insurance policies come with a deductible. If you’re the owner of an established restaurant with consistent revenues might be willing to accept a higher deductible in exchange for lower premiums. If you’re a new restaurant owner, on the other hand, you might wish to pay a lower deductible and pass more losses to the insurance carrier if an incident occurs.

In addition, you’ll want to compare policies from multiple business insurance companies to find the one that can offer the best coverage at the most affordable rate for your business.

If you’re looking for a place to start, you can use a marketplace site like CoverWallet or Insureon to receive and compare quotes quickly and easily online. On the other hand, of course, you can always opt to work directly with a well-known provider—The Hartford, Nationwide, Liberty Mutual, etc.—and see what they can offer your restaurant.

Article Sources:

  1. National Fire Protection Association. “Structure Fires in Eating and Drinking Establishments
  2. Nation’s Restaurant News. “Theft Protection Plan Key to Locking in Profits
  3. National Restaurant Association. “Hospitality Industry Turnover Rate Ticked Higher in 2018
  4. Insureon. “How Much Does Restaurant Insurance Cost?
  5. Howmuch.net. “Restaurant Insurance Cost
  6. Next Insurance. “Restaurant Insurance
  7. Howmuch.net. “Business Interruption Insurance Cost
  8. Insureon. “How Much Does Business Insurance Cost for Food and Beverage Professionals?
  9. Insureon. “How Much Does EPIL Cost?

The post What Is Restaurant Insurance and How Much Does It Cost? appeared first on Fundera Ledger.

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