How to Select the Right Insurance Coverage for Your Restaurant

By the time you open your doors, you will have developed relationships with several vendors, including your food and beverage purveyors, equipment sellers, and advertising representatives. You'll know where to get the best price on quality meats and have a file folder full of wares suppliers. As in our personal lives, business folk often look at insurance as a last-minute detail, and you probably won't shop as carefully as you should.

While insurance will not bring more guests to your door or improve your service and fare, securing proper coverage from Day One will help you sleep well at night. And believe us, in the startup-and-growth phase of the restaurant business, you'll welcome the rest.

Most restaurant owners and managers become quite skillful and knowledgeable when it comes to stocking their pantry and freezers. Ask them about buying their insurance program, however, and they get a pained look on their face and you get the impression they would rather avoid it. Part of the pain has to do with the price of insurance. This is especially true the past few years as businesses have seen significant premium increases. The question of the day is how do I get the most out of my premium dollars and what do I look for when buying insurance for my restaurant? This article will explore these issues so you can make informed purchasing decisions when it comes to your restaurant insurance. It will also provide checklists of the types of information the insurance agent will want to know to get you the best deal on your policies.

Property Insurance

Property insurance is "first-party" coverage, meaning that it covers property that you own or are required to insure as part of a lease agreement, such as tenant improvements. Your property coverage is limited to the amount of coverage purchased, such as $400,000. This is the most the insurer would pay in the event of a total loss. Exclusions for earthquake and flood are common, and separate insurance is usually required for these perils.

Some items to look for when purchasing your property insurance are the coinsurance clause and replacement cost. The policy's coinsurance language requires the insured to purchase coverage for his property, up to some stated percentage of the property's replacement value. For example, if your policy has a 100 percent coinsurance clause (most policies are 80 percent, 90 percent or 100 percent), you are required to insure 100 percent of your replacement values. Let's assume your 100 percent replacement values are $400,000 and you have $200,000 in coverage. Since you are only 50 percent insured to value, you will only receive 50 percent of any loss even if it is below the policy limit. That is, if you have a $50,000 claim, you will only receive $25,000 less your deductible, because you are only 50 percent insured to value. I recommend you ask this clause to be waived. Oftentimes this can be done if you sign a statement of values attesting that you are insured to 100 percent of values.

The replacement cost clause covers your property without any deduction for depreciation. This is a common coverage and readily available. Usually this is included, but you must be sure it is in your policy by reviewing the coverage. Restaurant insurance underwriters look at specific items when underwriting and pricing a restaurant risk for property coverage.