By Insureon Staff –
If you’ve had to temporarily close your restaurant during the COVID-19 pandemic, you might be tempted to cancel your insurance to save money. This could cost you more in the long run – and expose you to risk.
The coronavirus pandemic is devastating to restaurant and bar owners across the country. While some food and beverage businesses are offering curbside takeout and delivery to offset losses during the temporary shutdown, the financial toll is staggering.
As you explore every avenue to cut costs, you may wonder if canceling one or more of your restaurant’s insurance policies could help. The money you may save now could cost you more down the road.
Before canceling anything, consider these drawbacks.
1. You may lose your permits and licenses
Chances are your city and state require permits and licenses to operate your restaurant or bar. And they’ll usually insist you have business insurance in place before you’re approved.
Typically, you must have general liability coverage. And businesses with employees are required to maintain workers’ compensation insurance in most states.
If you cancel either or both of these insurance policies, you’ll likely lose those permits and licenses. Reapplying for licenses can be long, complicated, and expensive. And being approved once is no indicator you will be again.
Many cities issue a limited number of licenses, particularly for liquor. If you lose yours, a competitor could easily snag your spot.
2. You could default on your loans
From your mortgage to the equipment financing, many restaurant loans require you to maintain insurance. If you drop your coverage, you could find yourself in default, even if you’re current with loan payments.
Once a shutdown ends, you can’t resume normal operations if you lose your stoves, refrigerators, fryers, or even property. Check the fine print of your loans for the business insurance requirements before you cancel any policies.
3. Your insurance premiums will probably increase
No insurance provider will allow you to suspend insurance during a shutdown. Unless your provider offers payment accommodations for COVID-19, canceling and then later repurchasing an insurance policy is your only option.
Cancellation usually results in higher premiums, as carriers tend to see your restaurant as riskier. While you will receive a prorated refund based on your cancellation date, the payout might not be what you’re hoping for.
Insurers frequently include “minimum earned premium” language in policies that will affect your payout. Simply put, this is the least amount of money the insurance provider is willing to accept to cover your business.
To see how this breaks down, follow this example. Let’s say a restaurant:
• started its business owner’s policy six months ago with a yearly premium of $2,500,
• canceled today and,
• had a minimum earned premium of $2,000.
The owner’s refund would be a mere $500 ($2,500 yearly premium – $2,000 minimum earned premium).
4. You leave your restaurant exposed to theft and vandalism
Even during the best of times, it’s hard to protect your food service business from burglary and theft. The coronavirus outbreak has only multiplied these challenges.
Many shuttered restaurants have boarded up their windows since vacant storefronts tend to attract criminals. Unfortunately, plywood won’t deter every crook.
If you cancel your commercial property insurance policy, you won’t be covered for losses from theft or vandalism. By stopping your insurance, your business is open to greater risk during the very time you can’t be there to protect it.
Instead of canceling your policies, explore coverage adjustments and other options
Outright cancellation is rarely in your best interest. If you’re struggling and suspect you won’t reach revenue projections, you may qualify for reduced premiums. You can also explore adjusting your coverage.
Every restaurant owner faces unique challenges and needs. If your goal is to save money on your insurance, talk with your agent. You may be able to modify your premiums to better align with your current budget.
If you’re considering a change, act quickly. Rates are likely to increase, so now is the time to find the best quote and lock in your rate. Insureon’s friendly insurance experts are happy to discuss your options and help find the right coverage for you.
This article originally appeared on Insureon.com.
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