One of the most common ways that restaurant and bar owners can save money on insurance is by evaluating how they are being rated.  When it comes to figuring out how much to charge a Bar or Restaurant for Liability Insurance, different insurance companies use different methods.  Understanding the difference can help save you money and avoid surprises at the end of the year. Let’s take a look:

SALES

Most insurance companies will rate your business on Gross Annual Sales.  Their thinking is that a restaurant with greater sales has more customers coming in and out and is selling more food and drinks.  Makes sense.  In most cases, you, the business owner, would make an estimate at the beginning of the policy period and the insurance company will assign a rate (a percentage of the sales) to determine your estimated premium.  Once the policy period is over, they send an Auditor (the least cool person we know) to review your books and determine if your estimate was correct.  If you had more business, you may owe additional premium based on the same percentage they assigned. If you had less business, you may get a refund (but not always?!). 

                ADVANTAGES:

Only pay based on what you’re bringing in.  If sales slow down (COVID), you won’t be charged as much for your liability insurance.  If you have a great year, you may owe more but you get to earn that extra money first and pay after the fact. 

                DISADVANTAGES:

Most people don’t like the hassle of going through an audit every year.  If you don’t keep careful track of your estimate, you may have an unpleasant surprise of a large audit bill at the end of the year. Not all policies give a refund if you don’t make your estimate.

SQUARE FOOTAGE

Some insurance companies use a different method.  Instead of charging based on Gross Sales, they charge based on the square footage of the customer area in your restaurant.  The most common type of liability claim for restaurant is a Slip and Fall so the thinking here is that the bigger the space, the more customers you are likely to have, and the more opportunity for an incident. Because it’s based on your square footage, there is no end of year audit.

                ADVANTAGES:

You lock in your price at the beginning of the year and don’t have to go through an audit or have any additional premium due even if you double your sales. If you have a small space, these policies can often save a lot of money.

                DISADVANTAGES:

If business slows down unexpectedly, you still pay the same amount for your insurance.  If you have a particularly large dining room, you may not see any savings in this plan.

In our experience, most of our clients at Statement prefer the Square Footage rated policy.  In general, they have been less expensive and are easier to manage for the business owner.  That being said, each business is different and it’s critical that your advisor take the time to explore both models with you.  At Statement Insurance Agency and we’ll do a no obligation evaluation to determine which plan is best for you. CONTACT US TODAY