Though not the most exciting topic related to restaurant ownership, knowing mandatory and optional insurance requirements is certainly one of the most important. One customer that claims significant physical damage, an employee that injures themselves on the job, or a storm that leaves your restaurant underwater can dissolve your dream in an instant. In fact, FEMA estimates that about 40 percent of small businesses will never reopen after a disaster occurs.Some types of insurance are required by law while others are required by your lenders. Many of these requirements vary per state so be sure to check with your local business insurance broker. Many of these will be covered by a packaged policy.
Workers Compensation Insurance
Most states require this insurance in some form. It covers medical expenses as well as lost wages for employees injured on the job. Be sure to check with your state as some prohibit private insurance for workers’ comp.
There are several types of liability insurance including product, premise, liquor, automobile, and cyber. Product liability insures claims related to the product you sell: food and drink. This comes into effect, for instance, should a customer file a claim because of food poisoning.
Premise liability involves claims regarding events that occur on the property. This includes a customer that slips and falls or spills a cup of hot coffee on themselves (think McDonalds).
Most states require restaurants to carry liquor liability insurance. Forty-one states currently have dram shop laws. Should damage occur to another individual due to an intoxicated patron, these laws hold the restaurant or bar serving the inebriated customer responsible. Just last year, ex-football star, Brain Holloway, sued Panini’s Bar and Grill in Florida for the wrongful death of his son who died in a car crash after drinking at the bar.
Should your restaurant have company vehicles, you will definitely want to have automobile liability insurance. A personal auto policy will not provide coverage for a company vehicle.
It’s hard to imagine but, yes, these days restaurants are carrying cyber liability insurance. This protects you should your restaurant’s sensitive information be stolen by hackers. This type of insurance helps pay the ensuing losses that will inevitably follow.
The cost for general liability ranges anywhere from approximately $500 to $7,000 annually, depending on the operation. Fine dining establishments usually pay more as well as those restaurants that are pet-friendly or provide live entertainment.
Business Interruption Insurance
Should an unknown event occur that shuts down your business, this type of insurance will cover the losses incurred due to a forced temporary closure. This may include loss of income as well as food spoilage.
This protects your property in case of damage to your building or equipment. If pipes burst and water floods the first floor or a fire guts the kitchen, this type of insurance will help you recover. Before obtaining, be sure to calculate the value of all physical property in your establishment. Depending on which option you choose, the insurance may cover the monetary value of the items or the replacement cost. Most lenders require you to carry this type of insurance. It does not, however, cover natural disasters. That falls into the following category.
Specific Peril Insurance
This type of insurance covers many natural disasters such as earthquakes, floods or power outages. Be sure to find out how much coverage you can expect from this type of insurance. Flood damage can be extremely expensive.
Employment Practices Liability Insurance
Should you be sued for workplace discrimination, harassment, breach of contract, or improper termination, this type of insurance, known as EPLI, covers settlement costs, lawyers’ fees and other legal expenses. Claims can be made by current employees, former employees and even people you interviewed but didn’t hire.
Insurance needs can be overwhelming with premiums that vary dramatically depending on the size of your business and the number of employees. Because of the vast difference, be sure to shop around and find an insurance agent that you can trust. Obtain at least three quotes and speak to a few regarding the types of insurance that they feel are important to your business in your specific area and state.