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How Much Does Restaurant Insurance Cost? Guide to Restaurant Business Insurance

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Justin GuinnAuthor

How Much Does Restaurant Insurance Cost? Guide to Restaurant Business Insurance

Managing restaurant costs are one of the biggest challenges that owners and operators face. While labor costs and the cost of goods sold (COGS) are the most prevalent costs, there are plenty of others to account for.

Among these costs are restaurant insurance costs, which can be essential for protecting both the restaurant and its customers.

Understanding restaurant insurance costs and how to manage them is crucial for restaurant owners looking to save money and ensure their business's long-term sustainability.

In this article, you’ll learn about restaurant insurance costs, including the different types of insurance needed, how to calculate insurance costs, tips for reducing insurance costs, and how to choose the right insurance provider.

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Common reasons why restaurants need business insurance

Restaurant insurance policies can help operators mitigate risks associated with running their business, managing restaurant staff other employees, and serving guests.

For example, restaurant liability insurance can help protect operators from inherent risks associated with serving food and drinks. Such restaurant industry risks that a liability insurance policy can cover include food borne illnesses from food poisoning or food contamination. This can be due to spoilage or simply bad products.

Another risk that operators may want to include in their restaurant insurance quote is equipment breakdowns. Power outages and other operational disruptions can potentially cut refrigeration and spoil on-hand inventories.

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Types of coverage for restaurant business insurance

There are several types of business insurance that restaurants need, each with its own unique purpose.

Below are the most common types of insurance coverage needed for a small business restaurant to mitigate costs:

  1. General liability insurance: This type of insurance covers claims or lawsuits resulting from property damage, bodily injury, or advertising injuries that may occur on your restaurant's premises. A business owner’s policy for general liability insurance usually includes coverage for medical expenses, property damage, and legal expenses.

  2. Commercial property insurance: This type of insurance covers the physical assets of your restaurant, including furniture, equipment, and inventory. Property insurance typically covers losses from fire, theft, or vandalism, as well as damage from natural disasters such as floods or earthquakes.

  3. Workers' compensation insurance: This insurance covers workplace injuries for employees who are injured or become ill while at work. It includes medical expenses, lost wages, and rehabilitation costs.

  4. Liquor liability insurance: If your restaurant has a liquor license or beer and wine license, liquor liability insurance is a must-have. This type of insurance covers claims or lawsuits resulting from a patron's alcohol-related injury or damage to property.

  5. Auto insurance: If your restaurant uses vehicles for deliveries or other business purposes, you'll need commercial auto insurance to cover accidents and injuries that may occur. This includes coverage for physical damage, liability, and uninsured motorists.

  6. Cyber liability Insurance: As more transactions take place online, cyber liability insurance is becoming increasingly important. This type of insurance can help protect your restaurant from cyber-attacks and data breaches.

  7. Umbrella insurance: Umbrella insurance provides additional liability coverage that goes beyond what other insurance policies cover. It serves as a safety net for unexpected events that could lead to large lawsuits.

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Factors that can affect restaurant insurance costs

Several factors affect answering how much does restaurant insurance cost. These include:

  1. Business size and location: The size and location of your restaurant can have a significant impact on how insurance companies price your policy. Restaurants located in high-risk areas may need to pay higher premiums.

  2. Type of cuisine and alcohol service: Different types of cuisine and alcohol service can affect insurance costs. For example, restaurants that serve alcohol may have higher liquor liability insurance costs, and restaurants that offer high-risk cuisine such as raw seafood may pay more for general liability insurance.

  3. Number of employees: The more employees your restaurant has, the higher your workers' comp insurance costs will be.

  4. History of claims and risk management practices: If your restaurant has a history of claims or high-risk practices, such as not having proper safety protocols or employee training, you may pay higher insurance premiums.

  5. Operation and service models: Restaurant insurance costs can be especially dependent on your service models and operations. For example, if your restaurant needs to manage its own delivery — or if you have a fleet of food trucks — then commercial auto insurance will likely need to be added to your insurance policy.

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How to calculate restaurant insurance costs

Calculating restaurant insurance costs can be challenging as it involves several variables. Variables that can impact costs include the type of restaurant and type of food being served. Cafes and fast food restaurants may be more affordable to insure than exploratory fine dining restaurants.

Regardless of restaurant type, there are general guidelines to follow when estimating the average restaurant insurance costs.

Here's how to help calculate restaurant insurance costs for the most common types of insurance:

  1. General liability insurance: General liability insurance premiums are usually based on a rate per $1,000 of sales. The rate can vary depending on the type of cuisine and alcohol service offered, location, and previous claims history. As a general rule of thumb, expect to pay between $1,000 and $3,000 annually for this type of insurance.

  2. Property insurance: Property insurance premiums typically range from 1 to 3 percent of the property's value. For example, if your restaurant's property is worth $2,000,000, you could expect to pay between $20,000 and $60,000 for property insurance.

  3. Workers' compensation insurance: Workers' compensation insurance costs are determined by the amount of payroll for your employees and the type of business you operate. As a general rule, expect to pay between $0.75 and $2 per $100 of payroll.

  4. Liquor liability insurance: Liquor liability insurance premiums can vary significantly based on the type of alcohol served, size of the business, and location. As a general rule, expect to pay between $500 and $2,000 annually for this type of insurance.

Tips for reducing the cost of restaurant insurance

While restaurant insurance is necessary to protect your business, there are ways to reduce insurance costs. Here are some tips for reducing your restaurant insurance costs:

  1. Risk management strategies: Implementing risk management practices can help reduce insurance costs by reducing the likelihood of claims. Strategies can include regular safety inspections, employee training, and installing security systems.

  2. Choosing the right insurance provider: Comparing insurance providers can help you find the best coverage at the most competitive prices. Be sure to read reviews, compare quotes, and ask other restaurant owners for recommendations.

  3. Evaluating coverage limits and deductibles: Opting for higher coverage limits or higher deductibles can help reduce insurance premiums. However, be sure to assess your business's needs and risks to determine the appropriate coverage levels.

  4. Understanding endorsements and exclusions: Understanding what is covered and not covered in your insurance policy can help you avoid unexpected expenses. Be sure to ask about endorsements and exclusions before finalizing your policy.

  5. Working with an experienced insurance agent: An experienced insurance agent can help you navigate the complex insurance landscape and find the best coverage for your restaurant's specific needs.

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Taking control of restaurant insurance costs

Managing restaurant insurance costs can be challenging, but it's essential for protecting your business and customers.

By understanding the different types of insurance needed, how to calculate insurance costs, tips for reducing insurance costs, and how to choose the right insurance provider, restaurant owners can ensure the long-term sustainability of their business.

It's important to work with an experienced insurance agent and develop risk management strategies to minimize claims and reduce premiums. Remember, investing in insurance is investing in the future of your restaurant.

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Where do you go from here?

The greatest takeaway from this article is the importance of ongoing, consistent restaurant cost breakdowns — for insurance costs and beyond. 

This cost analysis doesn’t exist in a vacuum. As a restaurant operator, you’ve bought the ticket. Now it’s time to take the ride. The first best action you can take is to assess your current costing process and the systems you can employ for conducting a cost breakdown — especially for more controllable variable costs like food and labor.

While something is better than nothing, and manual calculations are something, your ability to accurately, consistently breakdown costs at scale is dependent on proper technology.

At the end of the day, profitability is the name of this game — not sales or revenue. A laser-focus on profitability requires a laser-focus on your costs — and a laser-focus on costs requires actionable, pinpoint accurate restaurant cost breakdowns.

Combining Toast and xtraCHEF can help all types of restaurants access reports on daily sales, costs, and how they’re impacting profitability.

Toast Payroll and Team Management, as well as Scheduling, powered by Sling, work together to uncover valuable labor trends so you can make better decisions.

xtraCHEF by Toast empowers you to drill into line-item level detail for every ingredient on each of your supplier invoices.

Together, these tools can automate and simplify the process of creating restaurant cost breakdowns.

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DISCLAIMER: This information is provided for general informational purposes only, and publication does not constitute an endorsement. Toast does not warrant the accuracy or completeness of any information, text, graphics, links, or other items contained within this content. Toast does not guarantee you will achieve any specific results if you follow any advice herein. It may be advisable for you to consult with a professional such as a lawyer, accountant, or business advisor for advice specific to your situation.