With so many moving parts to their business, shopping insurance for restaurants can quickly get pushed down the priority list. Hiring, training, placing food orders, mitigating food waste, accounting, payroll, etc…compared to other businesses the number of things to worry about can be overwhelming. As a result the restaurant insurance is often put on the back burner.
Like most other types of insurance, restaurant insurance cost is on the rise. It is important to have an agency who specializes in writing insurance for restaurants working with you to make sure you are getting the right restaurant insurance coverage at the right price.
These are the most common types of insurance for restaurants:
While this list appears short at first glance, just like your business, your restaurant insurance has many facets to consider in order to make sure you are properly protected. For example:
- Food Spoilage and Contamination
- Mechanical Breakdown
- Employee Theft
- Business Interruption / Loss of income
- Wrongful termination
- Sexual Harassment
Not all policies are created equal, and you could very well be missing an important line of protection on your restaurant insurance package. This is why it is important to be working with an agent who takes the time to fully understand your business insurance needs, and has the relationships with carriers who specialize in providing comprehensive restaurant insurance.
Below we will dive deeper into each of the most common lines of insurance for restaurants to get a bit more granular on what to look for, and touch on approximately what you should expect as restaurant insurance cost.
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Workers Compensation Insurance For Restaurants
When considering restaurant insurance, workers compensation insurance should definitely be on the list. Most restaurants, and even food trucks, have at least one employee in addition to the owner. When hired labor is present, there is always some level of risk of injury to the laborer. Workers compensation insurance financially protects the business from expenses associated with this type of exposure.
While there is more to know about workers comp than can be explained in this short article, we can cover on some of the frequently asked questions like:
- What does workers comp cover
- What does workers comp for restaurants cost
- What is Workers Comp Exempt Status
- What is an officer election
Before we continue, I would like to quickly address workers comp coverage limits. This is an area few business owners know about, and many agents don’t properly explain to their clients.
Workers compensation policies are generally written under one of three different coverage limits. We get into the details of these different coverages /in this article/, but the important thing to know here is that the difference between $100,000 in coverage and $1,000,000 in coverage is usually only 1.1%.
So, if a workers comp policy costs $1,720 for $100,000 in coverage, that same policy with $1,000,000 in coverage would only cost $5,018. An $18 difference for 10 times more coverage, that’s a no brainer.
You would be shocked at how often we work on quotes for businesses where an agent has placed them in a $100k coverage limit policy. It tells us that the customer is dealing with an agent who doesn’t really understand business insurance, and in turn is not properly protecting their clients. Most people know what medical expenses look like these days, how far do you think $100,000 would go if someone was severely injured? Keep in mind that $100k needs to cover their lost wages for how ever long they are out of work as well…
What does workers comp insurance for restaurants cover?
This is a pefect time in the article to Segway into what workers compensation insurance covers. Basically, there are two terms to consider when we are talking about what comp insurance covers: medical and indemnity.
Medical is, as you would assume, everything that has to do with doctors, surgery, recovery, and rehabilitation in the event that someone is injured on the job. When an injury happens the insurance carrier will cover all medical expenses involved in treating the injured party, up to your policy coverage limits. This could be as simple as some stitches for a cook who has severely cut their hand, or as complex as multiple surgeries and follow up physical therapy for more serious injuries.All of the above it generally going to be covered by your insurance carrier, again, up the the limits of the policy.
Indemnity, while sounding more complex, in this case can be viewed more or less as lost wages. I say “more or less” because most people think of lost wages in terms of the money an individual would have earned had they not been out of work as a result of an injury. When it comes to workers compensation though, indemnity can also be lost wages paid as a death benefit paid to the beneficiaries in the event that an accident results in a loss of life.
What does workers comp for restaurants cost?
Workers compensation cost is much easier to estimate than other lines of insurance for restaurants. Reason being that workers comp is simply determined by multiplying the rate for the classification of work by the amount of labor payroll to employees or uninsured subcontractors.
There are hundreds of class codes which correlate to the various types of work people perform. The classification code for restaurant workers comp is 9082.
Here are some workers compensation rates by state that we have been able to get for some recent clients:
North Carolina: 1.05%
South Carolina: 1.66%
There are some taxes and fees that get added to the policy, but they are minimal and it is pretty safe to estimate your workers compensation cost by simply multiplying your gross labor payroll by the rate above for the state you operate in.
So, a simple example would be a restaurant in Georgia with $100K in labor payroll would pay roughly $1,720 plus taxes and fees for workers comp insurance coverage.
Of course other factors can have an effect on your workers comp premium like years in business and claims. Which can either decrease or increase the price you pay for coverage respectively. Also, if your business is experience modifier rated, the mod rate has a direct effect on your annual premium. If you don’t know what a Ex mod is, you can read more about it in this article.
What does workers comp exempt mean?
When a business is deemed to be comp exempt, it means that they do not fall under the guidelines their state has mandated for when a business is required by law to have workers compensation insurance. Therefore, they may choose to not purchase workers compensation coverage. This does not mean comp exempt businesses shouldn’t have workers comp, it just means that they are not required by law to have it.
Most states determine work comp exemptions by dictating the maximum number of employees a business may have while maintaining a comp exempt status. Here a list of the requirements in a few of the states we service:
- Georgia workers comp exemption requirement – 3 or more employees, including owners/officers – Rules | State Board of Workers’ Compensation
- North Carolina workers comp exemption requirement – 3 or more employees, including owners/officers – NC Industrial Commission Information for Employers
- South Carolina workers comp exemption requirement – 4 or more employees, including owners/officers – Coverage/Compliance | Workers’ Compensation Commission
That said, as a business owner, as soon as you hire your first employee you should have workers comp insurance in place to protect both your business and your personal assets. Just because you are technically “Comp exempt” per state workers compensation guidelines doesn’t mean you are exempt from being sued as a result of an employee getting injured.
There are numerous hazards in the restaurant environment, accidents are relatively common. If someone is injured while working for you, even if they are a 1099 subcontractor without their own workers comp coverage, you are almost alway going to be liable for their expenses relating to the injury. With the cost of legal and medical services these days even a minor injury could wipe you out financially.
Still want to know more about going comp exempt? Check out this article we have specifically on the topic.
What is an officer election?
When an owner of a restaurant does not want to be included for coverage under their workers comp insurance, they file what is called an “Officer exclusion” form when workers compensation policy is being set up. This simple one page form tells the insurance carrier that the owner(s) or officer(s) of the business does not want to be covered by the policy in the event they are injured on the job, and as such their personal payroll should not be used in the calculation of annul premium the business needs to pay.
Easily 99.5% of the workers compensation policies we write have the officer excluded from coverage. In the end, it really all comes down to cost, but maybe for reasons you haven’t considered.
In many states the amount a small business owner would pay to include themselves on their workers comp policy is more than they would pay for disability insurance, which is very similar to the indemnity portion of workers compensation coverage. So, a restaurant owner who has health insurance, and purchases their own disability coverage, is generally going to pay less for roughly the same level of coverage.
Another reason business owners exclude themselves from coverage is because they would not want to file a claim against their own insurance for a personal injury. Having workers compensation claims has a negative effect on your businesses experience modification rate, which directly controls the amount you are paying for workers compensation. Increased premiums can last for as long as 3 years after a claim is completed.
Additionally, states have minimum payroll requirements in order for officers to be included on their workers compensation insurance policies. In some states this can be as high as $52K per year. Some business may not have that much payroll going to the owner, but even though the owner is making less than the state minimum the insurance carrier must use the predetermined minimum set by the state they reside in. For new businesses in particular, where profits are often thin for the first year or two, including the officer in the workers comp coverage can be cost prohibitive.
Business Owners Insurance For Restaurants
How many times have you heard “Bundle and save!” on home and auto insurance commercials? Well, the same thing applies to some lines of commercial insurance as well. As you would expect of the exciting industry of insurance, the powers that be creatively named this combination of coverages…a “Business Owners Policy” which is also commonly referred to in short as a BOP.
Business owners insurance for restaurants generally packages a number of coverage including: general liability, commercial property, equipment breakdown, food spoilage, business interruption, employee dishonesty, and EPLI. All of these lines of coverage cab be purchased separately, but
BOP’s save you money over purchasing each of these coverages mono-line. They also make life a lot simpler by consolidating coverage with one carrier to deal with, and a single monthly payment rather than multiple bills to remember to pay.
To quickly recap what these types of insurance provide to restaurants:
General Liability Insurance For Restaurants
Provides protection for the business in the event that a someone other than an employee is injured as a result of the restaurants actions or negligence. For instance if a waiter spills something extremely hot on a patron causing skin burns.
An additional line of protection provided by general liability insurance for restaurants is product liability. As a restaurant your food is your product, and there is always a risk of contamination causing a food-borne illness in your staff and patrons.
Commercial Property Insurance For Restaurants
Provides protection for the building in which the restaurant operates and many of its contents including computers, equipment, furniture, and more.
Restaurants are always at risk of having a fire. Gas burning ranges, open flames, and evaporated oils make mini explosions all night long when the line is in action. In this environment everyone is depending on the fire prevention maintenance performed by the business to ensure that a devastating fire doesn’t erupt.
Having a well thought out and executed preventative maintenance and fire safety protection program will also save you money on your restaurant insurance cost.
Business Interruption Insurance for restaurants
Provides protection when the business must remain closed for an extended period of time usually as a result of a variety of reasons. Business interruption insurance covers loss of income, operating expenses, a move to a temporary location if necessary, payroll, taxes, and even loan payments.
More often than not restaurants make claims as a result of fire or flood, but thing like breaks in supply chain can also be covered as well. This coverage is not talked about often by inexperienced agents, but it can absolutely be the difference between your business being able to reopen after a disaster and not.
Employee Dishonesty Insurance for restaurants
Provides protection in the event that the business incurs financial expense or loss as a result of theft or fraud by an employee. This is a line of coverage we all hope on a personal level that we never have to use, but unfortunately varying levels of employee theft happen pretty often.
Employment Practices Liability Insurance (EPLI) For Restaurants
Protects the business from law suits filed for employment related issues like: wrongful discipline, wrongful termination, discrimination, sexual harassment, or violation of the Family Medical Leave Act. With the turnover rate for employees in the restaurant business, paired with common restaurant employee management structures, this is a coverage all restaurant owners should have in place.
Like employee dishonesty this is a coverage you hopefully expect to never use. Even if you don’t do any of the things on the list above, it doesn’t mean that someone can’t accuse you of doing them though. It is very common for disgruntled employees to make all kinds of accusations of their former employer. Lawyers are quick to pick up these cases because they are hard to defend and often end in settlements.
Without this line of coverage in place the business would need to pay to legally defend themselves rather than their insurance company handling the legal team and expenses for them.
Equipment breakdown and food spoilage
are other line items of coverage which can be added under a BOP. Depending on your perishable food inventory value, food spoilage coverage could be imperative. Consider a steak restaurant who dry ages on site, if their temperature control system goes down the loss of money can be substantial.
Liquor Liability Insurance For Restaurants
Liquor liability insurance for restaurants is a must if you manufacture, sell or serve alcohol at your restaurant or bar. Currently 43 states, and Washington D.C., have what are called Dram Shop Laws in place. These laws hold the restaurant liable for serving alcohol to intoxicated patrons who later cause death, injury, or property damage as a result of leaving the establishment in a drunken state. These laws also hold the business liable for serving alcohol to minors.
Lawsuits arising as a result of an accident caused by someone who’s last drink was served in your establishment are exceptionally difficult to win. In these scenarios the courts often land on the side of the parties injured by the inebriated individual.
Some restaurants don’t sell alcohol, but occasionally host events where alcohol is served. If this is the case for your restaurant you should consider purchasing what is called Host Liquor Liability insurance. This coverage basically follows the same principal of a standard liquor liability policy, but instead provides protection for the establishment who is hosting the event rather than the bar or restaurant who serves alcohol as a part of their normal business operations.
Commercial Auto Insurance For Restaurants
The least common line of coverage for restaurants on our list is commercial auto insurance. A majority of restaurants don’t have company vehicles, and fewer restaurants are doing delivery now that there are options available like Uber Eats and Door Dash. That said, if you do have company vehicles or employees using their own in vehicles for company business, you should have commercial auto insurance coverage in place.
Auto insurance is one that pretty much everyone who would be reading this article knows about, and probably currently has their own personal auto coverage. Commercial auto provides fundamentally the same types of coverage as a personal auto policy would. In short, damage to property or physical injury is going to be covered by the insurance policy in the event that one of your vehicles is involved in an accident.
The areas a lot of star-up restaurant owners miss this coverage is when employees are using their own vehicles to perform work for your business. This isn’t limited to delivery services, for instance:
- An employee running to the local grocery store to pick up something for the kitchen
- Your restaurant is taking part in a local cooking exhibition and employees are using their vehicles to help bring food and supplies to the event
- You fill a large pick-up order for a local business gathering, but missed part of the order and send one of your servers to drop it off as a courtesy for the large order
At least one above scenarios have probably happen in your restaurant, and without either Hired, and/or Non-owned coverage depending on the arrangement, your business could have been on the hook for damages if an accident had happened.
If you don’t have company autos, but need to cover the exposure of employees vehicles, many Business Owners Policy carriers will allow Hired and non-owned coverages to be added to your BOP.
As mentioned in the beginning of the article, there are a lot of things to consider when you are trying to protect your restaurant business and your assets. We’ve covered the basics here, but there is definitely more to know and understand.
The best way to know you are getting the right coverage at the right price is to have an insurance agent working for you who specializes in your industry. Having a general agent who also sells home, boat, and turtle insurance is the equivalent of expecting one of your servers to take over the grill…just because they work in the same industry doesn’t mean they have the same skill set.
Finally, don’t hesitate to ask your agent questions! They should be happy to answer any questions, make sure they full understand the structure of your operation, and be sure you are making an informed decision.