Chapter 2: Understanding Food Business Insurance Policies
Part 2: Small Business Insurance Basics
Now that you know the risks that restaurant, bar, and catering business owners face, it's time to examine the insurance coverages that can help you out of a costly situation. As we mentioned earlier, sole proprietor status means that you have "unlimited liability" for any debt your business incurs. If you don't have the commercial funds or insurance to satisfy a claim, creditors can collect your personal assets.
You've worked too hard to let that happen. So let's discuss the coverages that can protect your business:
- General Liability Insurance.
- Property Insurance.
- Business Owner's Policy.
- Workers' Compensation Insurance.
- Health Insurance.
Keep reading to learn how these policies offset risks for your food service business.
General Liability Insurance
General Liability Insurance (GL) is the foundation of your business protection plan. This policy offers an array of liability coverage and ensures your business can survive an expensive court battle without depleting your personal finances. After all, it only takes one trip, fall, or hot-coffee burn to cost your bar, catering business, or fine dining establishment big time.
General Liability shields your small food business from the following third-party liability risks:
- Bodily injuries that happen on your premises.
- Damage to others' property.
- Advertising and personal damages.
A "third party" is anyone who isn't employed by your business or your insurance company. (Coverage for injuries that happen to your staff and employees is covered by Workers' Compensation Insurance.) If your restaurant is sued for a GL-related claim, your policy can cover legal defense fees, settlements or judgments, and other court expenses (up to your policy limits). Common GL claims include…
- Premises Liability. If you own commercial property, the premises liability protection GL offers alone is worth the investment. If a customer slips and falls in your restaurant or bar, this is the part of your policy that steps in to cover the claim. Unfortunately, such instances aren't as rare as you'd think: the National Safety Council's "Slips, Trips, and Falls" [PDF] handout estimates that slips and falls are to blame for approximately 8.9 million trips to the emergency room each year. Emergency room trips aren't cheap. If a customer is injured in your establishment, your GL may include Medical Expenses Coverage, which covers the hurt person's immediate medical attention. Insurance providers would rather pay the cost of an ambulance ride than the bills associated with months of fallout from an untreated injury.
- Property Damage. Some food services professionals (including caterers) frequently come in contact with others' property. Here's an example: while catering a wedding, you and your team set up and serve at someone's venue. If your heating equipment causes a fire and destroys the venue's tables and floors, you could face a lawsuit angling to recuperate those expenses. General Liability handles claims over third-party property damage that happens while you're carrying out your work.
- Advertising Liability. Ever use an image from a quick Google search on your business's Facebook page, blog, or Twitter feed? If so, you could be sued for copyright infringement. There's also product disparagement to consider. Product disparagement is when you make a false statement about the quality of goods being offered for sale somewhere, and that statement encourages others to refrain from dealing with the injured party. For both these instances, GL steps in when the injured party sues you for copying their work or hurting their reputation. Your policy also covers libel or slander charges.
As you can see, General Liability Insurance offers a substantial safety net against these all-too-common claims. The cost of General Liability coverage varies based on the services you provide, how long you've been in business, your claims history (if applicable), and the amount of revenue your establishment generates. For a custom estimate, apply for a free GL quote online.
Property Insurance is essential for business owners who own or rent commercial real estate and expensive equipment. For most food service professionals, both are true. From your building and furniture to your ovens, stoves, and refrigerators, you've invested a lot of money into creating an inviting dining atmosphere or functional kitchen and bar.
Luckily, Property Insurance can cover the cost of any loss or damage to your equipment and premises. With a Property policy, you don't have to start from scratch when a disastrous event leaves your restaurant in ruins. Property coverage typically covers destruction or loss caused by…
- Thefts and vandalism.
- Power outages or surges.
You'll notice that hurricanes, floods, and earthquakes are absent from this list. Standard Property policies exclude such events, but you may be able to add the appropriate endorsement to your plan.
Because you don't want your restaurant or bar to be among the 40 percent of small businesses that never reopen after a natural disaster, it's important to secure a Property plan before you'll ever need to use it. Generally, it's wise to purchase a policy if you…
- Own commercial real estate. As the owner of commercial property, you may already be acquainted with just how much repairs can cost. (The price of construction and building materials continues to rise each year! Read ENR.com's "Construction Economics" report for the full rundown.) But a repair here or there is nothing compared to the avalanche of bills you would face if a serious weather event or kitchen fire leveled your property. With adequate coverage, though, you have the means to make repairs to your building and replace its contents so you can get back to work quickly.
- Rent a building. Though your landlord may have your building protected under their Property Insurance plan, be sure to check your lease. Some landlords require commercial renters to secure their own coverage; others don't. Even if your landlord has a policy to protect the building, you're likely responsible for damage to your furnishings, fixtures, and equipment. If that's the case, you'll need a Property plan that doesn't charge you for coverage of your building – only its contents.
- Own expensive equipment. You rely on a wealth of supplies, inventory, dishware, glassware, cleaning equipment, and kitchen equipment to run your business. Plus, you likely have computers and registers to protect. Your Property plan can cover the gear you depend on to serve your customers and keep your kitchen in working order. Your insurance provider may offer you the option of covering your equipment at its actual cash value or its replacement value. Actual-cash-value coverage comes with a lower premium, but only pays out what your depreciated items are worth. This may be the most cost-effective option if secondhand replacement items are readily available. If not, you may be wise to choose replacement-value coverage. Though it costs a little extra, this option compensates for the cost of buying brand-new replacements.
As you take inventory of your commercial assets and decide which limits are appropriate for your needs, be sure to give yourself plenty of breathing room! Getting back on your feet after a disaster is hard enough – no need to strain your finances, too.
Business Owner's Policies
A Business Owner's Policy (or "BOP") is an insurance bundle offered only to small-business owners. A BOP packages General Liability Insurance, Property Insurance, and Business Interruption Insurance for less than you'd pay if you bought these policies individually.
In order to purchase a BOP, your business must meet a few qualifications. These include…
- Having small business premises. Limiting square footage helps your provider distinguish your small business from larger operations. Your carrier may also use the number of employees you have to help assess the size of your business.
- Having a low risk profile. For this portion of your assessment, your provider takes your industry and your claims history into account.
- Needing no more than a year's worth of Business Interruption Insurance. Business Interruption Insurance can be purchased as a rider to Property Insurance. The coverage steps in when your restaurant or bar must temporarily close due to a covered Property claim. When that happens, Business Interruption Insurance compensates you for foregone earnings. Compensation is based on the past financial records of your food business.
Ready to save money and build the basis of your business protection plan? Find out whether your business is eligible for a BOP today when you talk to one of our insureon agents!
Workers' Compensation Insurance
According to the National Restaurant Association's "News & Research: Forecast 2014," restaurants are expected to employ 13.5 million people, or about 10 percent of the U.S. workforce, by the end of 2013. Even though your restaurant or catering business is still growing, you know it takes an entire team – whether that includes servers and cooks or your bartenders and hosts – to keep customers happy.
But in the food services industry, accidents can have devastating consequences for your staff. A chef could suffer grease burns or cut a finger while chopping veggies. A server in a hurry to get food to the table could slip, fall, and break a bone. Any of your employees could throw out their back while lifting heavy equipment. And if you own a catering business, your employees could be the victims of a robbery, since catering employees often carry cash.
For all these reasons, you'll want to protect your employees with Workers' Compensation Insurance. This coverage can shield you from the high cost of medical bills related to your employees' occupational injuries. Plus, most states require that employers carry the insurance if they have even one employee, full- or part-time. (For a full rundown of Workers' Comp regulations, check out our guide, "Workers' Compensation Laws by State.")
A quality Workers' Comp plan can help pay for…
- Medical expenses associated with your employees' occupational injuries, including their immediate and ongoing medical treatment.
- Missed wages during your employees' recovery.
- Lawyers' fees (through the Employer's Liability Insurance portion of your policy) if an employee sues your business over their work-related injuries.
As the sole proprietor of a restaurant, deli, cafe, or catering business, you may be permitted under state laws to include yourself under your Workers' Compensation coverage. If you do, you'll have a little extra income security if you suffer an occupational injury, too.
However, most states don't require you to cover yourself, so you can opt out if you want to save some money on your premium.
As you know, the Affordable Care Act (Obamacare) has changed the rules on healthcare. Since the start of 2014, health insurance is no longer something you can opt out of if you are self-employed. Everyone must carry coverage.
The good news is that you can't be turned away or charged more for preexisting conditions. And women can no longer be charged more for health coverage. According to HealthCare.gov, you don't have to provide coverage for your employees if you have fewer than 50 full-time equivalent (FTE) employees. This part of the law is called the Employer Shared Responsibility Payment.
For all your health insurance needs, you can turn to the SHOP Marketplace to find coverage options. The plans are organized by metal categories: bronze, silver, gold, and platinum. The platinum plans come with highest premiums and lowest out-of-pocket costs. On the other end of the spectrum, the bronze plans have lower premiums and higher deductibles. As a self-employed person, you may qualify for lower insurance premiums or tax credits.
Next: Part 3: Essential Insurance Policies for Food Services Professionals
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