Do You Need Insurance to Open a Restaurant?

Opening a restaurant is a huge undertaking. You’ll need a business plan, funds, staff, a physical location and more. One of the often-overlooked necessities, however, is restaurant insurance. 

Insurance requirements are generally determined by the state. Be sure to check with your state’s requirements when you plan on opening a restaurant to make sure you have the proper legal licenses and insurance. In some cases, you may need to purchase insurance in order to obtain a license.  

Common licenses and permits associated when opening a restaurant include: 

• Business License: Every business in the U.S. must obtain a legal business license from the government. Keep in mind that licenses are not like insurance. Instead of monthly premiums, licenses are typically purchased in one lump sum. Depending on your location and the license, you may pay around $50 for the license and $25 to $50 for additional filing fees. This license allows you to legally operate as long as you follow the laws and regulations set by the U.S. government and your state. 
• Foodservice License: Restaurants must obtain a foodservice license through the city’s health department. This allows your restaurant to sell food as long as your business operates according to restaurant food safety regulations. Keep in mind that the health department is free to check in occasionally in order to make sure your restaurant is up to par. The average cost of one of these licenses can be anywhere between $100 and $1,000. 
• Food Handler’s Permit: A food handler’s permit is another health-related permit that promises all employees have completed a food handler’s course and obtained a food handler’s permit as required by the state. These permits cost around $100 to $500 each. 
• Liquor License: For a restaurant that sells or serves alcohol, you will need to purchase and maintain a liquor license. This license guarantees that you can serve alcohol so long as you follow the Alcohol and Beverage Control board’s regulations regarding the sale of alcohol in your state. Liquor licenses are one of the more expensive licenses. A full liquor license may cost around $12,000 to $400,000. Liquor licenses that only cover wine and beer are generally cheaper, at an average of $3,000. 
• Employee Identification Number (EIN): An EIN is a tax ID number assigned by the IRS, generally for free. 
• Sign Permit: If you want to hang or post any outdoor sign for your business, you will need a permit to do so. 

Insurance for Restaurants 
Business insurance requirements vary by state, and this is no different when it comes to restaurants. In most states, restaurants are required to carry workers compensation. Workers compensation provides monetary assistance for employees that are injured on the job. This includes coverage for their medical expenses, disability benefits, wage replacement and more. 

Some states may also require commercial auto insurance for restaurants that own or use vehicles for work purposes. If your restaurant has delivery trucks, for example, you will likely need commercial auto insurance. These policies provide coverage for work vehicles in case of damage or loss due to fire, hail, theft, vandalism and more as well as liability coverages.  

There are other entities that may require insurance for restaurants. For restaurants that are renting equipment or other property may be required to carry property insurance, and some lenders will require an amount of general liability insurance, as well. 

Beyond requirements, restaurant owners should consider carrying the proper insurance in order to protect their assets. A single lawsuit or natural disaster can ruin a restaurant by draining savings in expensive repairs and settlement costs.  

Restaurants should consider carrying: 

• General Liability: General liability insurance covers claims of a third-party bodily injury or property damage that occurs on the restaurant’s property. It can also cover personal or advertising injury, which concerns claims regarding libel, slander, copyright infringement and more. 
• Commercial Property: Commercial property insurance compensates the business if its physical property is lost or damaged due to fire, wind, hail, lightning, smoke, explosions, theft, vandalism and more. 
• Liquor Liability: Liquor liability insurance protects the business is a patron that was served alcohol leaves the establishment and causes bodily injury or property damage. 
• Equipment Breakdown: Restaurants often have expensive and valuable equipment. This insurance helps replace that equipment if it suddenly breaks down, such as refrigerators and freezers. 
• Food Spoilage: This insurance can help replace food that spoils due to an unexpected incident, such as a refrigerator suddenly breaking down and causing all of the food inside to spoil. 

Be sure to check with your state’s laws and requirements when looking to start a restaurant, and also consider your restaurant’s unique needs when it comes to business insurance. No restaurant is the same and some need different types and limits of insurance than their neighbor’s.