What Types of Insurance Do Restaurants Need?
A restaurant has a unique ability to give patrons a tailored experience. From the room’s ambiance to the food’s taste, there is a great ability to showcase delicious food and generous hospitality. Running a restaurant is no easy feat and comes with risks. A restaurant business insurance policy helps keep the business secure from financial strains caused by accidents.
Related: Guide to starting a restaurant
What are Some of the Risks for a Restaurant?
From time to time, a restaurant will run into risks such as:
- Customer injury
- Illness from the food
- Over-serving alcohol
- Fires and damages
- Extended closures
A restaurant that is poorly maintained has slippery floors, or has crowded layouts, will have an increased risk of patron injury while on the property. Trips and falls are common hazards that instigate an insurance claim.
Other injuries such as burns from hot plates and cuts from broken glassware may happen. And, although not likely, a restaurant fire has the possibility of causing customer injury or death.
Illness from Food
Customers can become ill if they are served food that has been contaminated. This can occur if there are not proper food storage and preparation guidelines set in place and enforced. Escherichia coli (E. coli) and other bacteria threaten food quality and can cause a customer to become sick.
Establishments that serve alcohol are required to have a liquor license. If a customer is over-served or if a minor is served alcohol, the restaurant can be held liable for injuries and damages.
Fires and Damages
A variety of equipment in a kitchen uses ignition. Examples include stoves, ovens, fryers, and blowtorches. These pieces of equipment can cause a fire in the kitchen. Further, grease fires are a common source of restaurant fires. An exhaust hood that isn’t cleaned regularly collects grease that becomes flammable.
Damage can also happen to the property from leaking water pipes, theft, and vandalism.
Several reasons a restaurant may be closed for an extended period include fires, floods, and supply chain interruptions.
The most common reason for restaurant closure is fire loss. The restaurant may need to be closed until all repairs are made, and during that time, the restaurant is unable to host customers—therefore unable to generate income.
Types of Insurance a Restaurant Should Consider
Despite the assortment of risks that a restaurant will face through normal operations, a well-rounded insurance portfolio keeps the business secure from financial loss due to accidents. Restaurants should consider:
- General liability Insurance – premises and operations
- General liability insurance – products and completed operations
- Liquor liability insurance
- Commercial property insurance
- Business interruption insurance
General Liability Insurance – Premises and Operations
A general liability policy for premises and operations offers insurance coverage for a third party who is injured due to the owner’s failure to maintain the property. An example of this type of claim would be a customer who slips on icy stairs and becomes injured. The owner may be held liable for the injuries if they did not take measures to make the stairs safe.
Slips, trips, and falls are common liability claims covered under a general liability policy. This type of policy covers expenses for:
- Medical bills
- Property damages
- Legal fees
How Much Does General Liability Insurance – Premises and Operations Cost?
Premises and operations liability usually costs between $400 – $1,000 annually.
General Liability Insurance – Products and Completed Operations
In restaurants, general liability for products and completed operations will cover claims arising from the prepared food and beverages. This coverage is different from premises and operations since it offers coverage directly for the products. However, these two liability exposures (premises liability and products liability) are usually covered in the same policy.
Injuries from food and beverages happen if a customer finds a foreign object in their food or an allergen that wasn’t supposed to be there.
Also, illnesses from E. coli, salmonella, and other bacteria are a risk to the restaurant. The general liability policy offers liability coverage for such claims. It will pay for the costs of legal fees, medical bills, and settlements.
Keeping food stored at proper temperatures and maintaining a clean workspace can help prevent food poisoning or a foodborne illness. However, if an accident does occur, this general liability policy will help.
How Much Does General Liability Insurance – Products and Completed Operations?
Products liability is usually covered in a general liability policy and costs between $400 – $1,000 annually.
Liquor Liability Insurance
Many restaurants offer alcohol service in addition to foodservice. Establishments that serve alcohol must have a liquor license and should also consider a liquor liability insurance policy. The risk of an alcohol-related lawsuit is high for restaurants—especially for those that do not have policies in place to cut off intoxicated patrons.
A restaurant can be sued if they over-serve alcohol to a customer, and that customer then injures a third party by driving drunk. Serving alcohol to minors is also a big risk for restaurants.
Liquor liability will cover:
- Legal fees
- Bodily injury
- Property damage
- Third-party injuries
How Much Does Liquor Liability Cost?
A liquor liability insurance policy may cost between $900 – $1,200 annually.
Commercial Property Insurance
Commercial property insurance offers protection for the restaurant’s physical structure and all the items owned by the restaurant (tables, inventory, equipment, computers, and so on). Suppose the property is damaged by incidents such as fire, leaking water pipes, vandalism, or theft. In that case, the commercial property insurance policy will cover the costs of repairing and replacing the damaged building and items.
A commercial property insurance policy is usually written with a general liability policy. And, if the restaurant leases their space, they should check the lease contract to find out what type of property insurance is required. Will the landlord insure the building? Or, is the restaurant responsible?
A certificate of insurance (COI) may be required by the landlord to prove that the restaurant has adequate insurance.
How Much Does Commercial Property Insurance Cost?
A commercial property insurance policy varies depending on the size of the building and if it is owned or leased. A restaurant can expect to pay between $1,000 – $3,000 annually.
Business Interruption Insurance
Business interruption covers expenses for lost funds when the restaurant is closed due to a covered loss. In the event of a fire, power outage, equipment breakdown, or another type of loss, the restaurant may have to close for an extended period to complete repairs. Sometimes the loss only affects a portion of the building, and business is not interrupted; however, in those times when the damage results in closing the restaurant, a business interruption policy helps cover expenses.
As the restaurant is unable to make money during a closure, the business interruption policy offers coverage for:
- Lost income
- Temporary relocation
- Payments on debts
- Wages to employees
- Regular expenses and bills
How Much Does a Business Interruption Policy Cost?
A business interruption policy is typically bundled with a liability and property insurance policy. A restaurant can expect to pay between $500 – $1,500 annually for the business interruption coverage. A restaurant has a higher exposure to this risk and can expect a rate that falls on the higher side.
Workers’ Compensation Insurance
Workers’ compensation, sometimes called workers’ comp, covers the medical expenses and loss of income if an employee is injured on the job. Falls, concussions, cuts, and broken bones can all happen since the crew is working with knives, heat, and slippery floors.
Proper training, experience, and supervision are essential to protecting employees from harm, but in the case when an accident does occur, workers’ compensation coverage helps to protect the business from additional liability.
Workers’ compensation insurance covers:
- Medical expenses
- Funeral costs
- Lost wages
How Much Does Workers’ Compensation Insurance Cost?
The cost for a workers’ comp policy will vary depending on the pay the employee receives and the type of work done. Due to the business being high risk, a business can expect to pay around $2,700 – $5,000 annually.
How Much Does Restaurant Business Insurance Cost?
Despite all the risks that restaurant owners may be exposed to, there is an insurance policy to help protect the owner. Having a solid restaurant insurance policy means the business owner can spend less time thinking about the risks and more time thinking about the customers who are enjoying the restaurant.
Annual costs for a Restaurant Business Owner’s Policy (BOP):
- General liability (both premises and products liability) – $400 – $1,000
- Liquor liability – $900 – $1,200
- Property insurance – $1,000 – $3,000
- Business interruption – $500 – $1,500
- Workers’ compensation – $2,700 – $5,000
These estimates will fluctuate depending on the size of the restaurant, the number of employees, and the amount of liquor sales. Overall, a restaurant can expect to spend between $5,500 – $11,700 on insurance.
For businesses that offer delivery services, commercial auto insurance should also be considered. Personal auto insurance usually won’t cover the business when the vehicle is being driven for business reasons, including transporting food or equipment.