When you open a restaurant, insurance is one of the most important investments you can make. Like car insurance or health insurance, these commercial policies help you manage the financial risk that comes with doing business. Is your restaurant protected?

What is restaurant insurance?

Restaurant insurance is coverage that protects your business from financial losses when unexpected problems arise. It can help you cover legal and medical costs for customer injuries, for example, or pay for repairs and lost income after a kitchen fire.

Running a restaurant is inherently risky — the equipment is expensive, profit margins are narrow and a single mistake in food storage or handling can result in an outbreak of foodborne illness. Insurance helps mitigate that risk, making it a must-have protection for every restaurant owner.

Before you buy business insurance, it’s important to note that no two policies are alike. If you go into the process with a clear idea of your restaurant’s vulnerabilities, it’s easier to understand how different policy types can benefit your company. 

Types of restaurant insurance to choose from

As a restaurant owner, you can select from a variety of coverage types; each one is designed to address a different liability, such as employee injuries or the potential for serving spoiled food. Common restaurant insurance options include:

• General liability insurance. These policies reduce your financial liability when someone makes a claim against your restaurant. The most common is bodily injury; coverage can help with expenses if a customer or a delivery person gets hurt while on your property. Some policies also include product liability coverage, which covers harm that results from the products you sell — usually, food poisoning. General liability coverage often extends to other things that might happen in the course of doing business, such as reputational harm, copyright infringement or damage to someone else’s property.
• Commercial umbrella insurance. You can use these policies to extend your liability coverage. They usually kick in when your general liability policy reaches its payout limit.
• Commercial property insurance. If your restaurant or the equipment in it is damaged, this type of coverage can pay for part or all of the repair or replacement costs. In some cases, it replaces a percentage of your lost income if you have to shut down for repairs. Typically, coverage is limited to damage due to situations out of your control, such as fire or theft.
• Business income insurance. This type of insurance extends the protection of a property insurance policy, enabling you to receive extra funding during a shutdown. Depending on the terms, it might cover expenses such as utility bills or lost profits.
• Workers’ compensation insurance. Most restaurants must purchase a workers’ comp policy to help cover employees’ costs if they get sick or injured on the job. Specific laws and coverage options vary by state.
• Commercial crime insurance. These policies provide extra protection against general theft, employee theft, forgeries and data theft.
• Liquor liability insurance. If you serve alcohol, a liquor liability policy can help protect you if customers become intoxicated and cause harm to themselves, other people, or property.

Some insurance providers offer a business owner’s policy that combines liability and business coverage. Others enable you to buy separate policies for customized protection.

The cost of restaurant coverage

The cost of restaurant business insurance can vary significantly based on factors such as your company’s size, location, revenue, and coverage amounts. Some providers estimate an average annual cost of $2,080; others put that figure closer to $4,000.

When calculating premiums, insurance agents will consider your specific operation. For example, it usually costs more to insure a restaurant with upscale kitchen equipment or a high property value; if property damage occurs, the repair or replacement expenses are much higher. Likewise, a business with a large kitchen and front-of-house staff will pay more for workers’ comp than a two-person sandwich shop.

If the budget is a concern, try these tips to reduce your insurance costs:

• Ask about discounts for larger deductibles or up-front annual premium payments.
• Buy multiple policies from a single provider to get a bundle discount.
• Purchase only as much coverage as you actually need.
• Look for policies with a discount for loyalty or no-claims years.

Protecting your establishment

Buying restaurant insurance requires you to find a balance between protecting your business and controlling costs. An adequate amount of coverage provides peace of mind; more importantly, it helps your company stay afloat when unexpected expenses arise due to factors beyond your control.

1. Determine the type of coverage you need. At a minimum, most restaurants need general liability coverage, property insurance, and workers’ comp insurance.
2. Choose coverage limits. Your policy should provide enough financial support to cover common risks for your specific restaurant. If you run a bar with a mechanical bull, for example, you might need more liability coverage.
3. Compare quotes. Get quotes from more than one insurance company, and compare them closely. Pay attention to what is covered, coverage limits, and the specific terms of the contract. Make sure to look at coverage restrictions, particularly if your restaurant is located in an area that’s prone to hurricanes or flooding.

Restaurant insurance shields your business from a wide range of issues, from lawsuits to natural disasters. By investing in the right policies, you can stay compliant with local laws and keep the doors open even after a high-cost claim.