Alright, FoodTruckrs—over the last four months, you’ve done a lot of prep work and research to figure out whether or not a food truck is right for you. You’ve got your business plan, you’ve built an emergency fund, and you’ve even learned how to buy a food truck! Now, you’re ready to move on to Unit 5: The Next Steps.
During the month of May, we’ll be moving on to all the nitty-gritty lessons you need to complete to get your truck up and running. We’ll cover everything from truck maintenance to the licenses you need to establish your business as a legal entity. The next few lessons will be pretty heavy on information with a dash of legalese, so grab a to-go dish from your favorite local FoodTruckr before digging in!
First up on this month’s menu? Our guide to buying insurance for your food truck. We know that your food truck dream is a lot of fun and is likely based in your passion for cooking or a particular type of cuisine—but at the end of the day, your food truck is a business above all else. And as a serious business with a serious business owner who’s aiming for success, it’s essential to make sure that your truck is protected from anything and everything that rolls its way.
What Kind of Insurance Do You Need?
Before we get started, we do need to make a disclaimer—we are not insurance agents and none of the information in this article should be construed as legal advice. You should always talk to an insurance agent or broker about the specific coverage you need for your business, and you should also research your local laws to find out what type of insurance is required in your area.
Now, if you’re still a ways out from opening day, you might be wondering if you really need insurance this early in the game. Here’s the bottom line: you can probably wait on some insurance policies (such as workers’ compensation coverage) until later on, but you need to at least have vehicle insurance from the day you buy your food truck. Even if the truck is going to stay parked in your garage for the next several months while you prepare for your grand opening, you still need coverage in case the truck is damaged or in case you suffer a collision on the way to get it wrapped or tuned up.
In general, there are three categories you’ll need to insure:
- Your Vehicle
- Your Business
- Your Employees
Within these three categories, you need four different types of insurance:
- Commercial Auto Liability Insurance
- General Commercial Liability Insurance
- Commercial Property Insurance
- Workers’ Compensation Insurance
Before we start digging into the details of these different types of insurance, let’s define a few key terms you’re going to encounter along the way.
Benefits: Money paid by the insurance company in the event of a covered loss.
Claim: A request for payment made to an insurance company after a covered incident occurs. When you make an insurance claim, the insurance company will investigate the validity of the claim and determine how much they can pay out.
Coverage: The risk or liability protected and specifically outlined in your insurance policy.
Deductible: A base amount of money you have to pay out of pocket before your insurance company will pay out any benefits. For example, let’s say you have a $1,000 deductible for your food truck’s insurance policy and you get in an accident:
- If the accident did $800 worth of damage, your insurance company will expect you to pay for the damage in full. You will not receive a payment.
- If the accident did $3,000 worth of damage, your insurance company will cover the difference after your $1,000 deductible and pay you around $2,000.
Limit: The total dollar amount covered by your insurance policy. For example, if your policy has a one million dollar limit, your insurance company will pay up to one million dollars in the event of a claim.
Premium: Payments made by the insured to the insurance company in order to receive coverage from an insurance policy.
Whew…we don’t know about you, but we think reading and defining all those terms is enough to give anyone a headache! But don’t throw in the towel just yet—this is important stuff that every food truck owner needs to know. Now that we’ve got those details out of the way, let’s take a look at the three different categories you need to insure: your vehicle, your business, and your employees.
1. Insurance for Your Vehicle
As we mentioned before, you need vehicle insurance as soon as you buy your truck. This is probably the most obvious category you’ll need to cover, and it’s also where the first type of insurance you’ll need comes in—commercial auto liability insurance.
Commercial auto liability insurance is similar to your personal car insurance in many ways. However, because your food truck was probably a lot more expensive than your 2008 Honda Accord, you need to have an insurance policy with much higher limits. Commercial auto insurance typically includes:
- Collision insurance to cover damage to your vehicle in the event of a traffic accident.
- Comprehensive insurance to cover you in the event of a non-traffic incident, such as a fire or theft.
- Medical coverage to pay for medical bills in the event of an accident.
- Uninsured and underinsured motorist coverage to protect you if you are involved in an accident with a driver who does not have the type of insurance they are required to have by law.
Sometimes, commercial auto insurance may also include rental vehicles and personal vehicles used for business purposes. For example, if an employee gets into an accident on the way to the store to buy more paper plates, your business could be held liable for the accident since the employee was performing a duty for your business. If your commercial auto insurance covers personal vehicles used for business purposes, you’ll be protected from hefty repair costs and potential medical bills. Be sure to find out if your policy covers this type of occurrence before buying commercial auto insurance.
Keep in mind that many commercial auto insurance policies will primarily cover your truck itself, and they may not cover damage to any kitchen equipment inside the truck. You might need to have a separate property policy (which we’ll cover in the next section), or you will need to ask your agent or broker which of the interior elements of your truck are covered.
Finally, before letting anyone take the wheel of your beloved food truck, make sure you have a copy of his or her driving history. You can certainly ask about each employee’s driving history on job applications, but you can’t assume that each person is being honest—no matter how nice they are or what kind of delicious grilled steak tacos they can cook up on the fly. Check your state’s Department of Motor Vehicles to learn how to request a driving background for each employee who will be driving your truck. You will have to pay a fee and the employee will need to sign a release form, but these extra precautions are definitely worth the time and cost if they can prevent you from handing the keys over to someone who may be covering up a history of accidents and irresponsible driving habits.
2. Insurance for Your Business
In addition to insuring your vehicle, you also need to insure your business. There are two types of insurance you’ll need to protect your business—general commercial liability insurance and general commercial property insurance.
General commercial liability insurance protects you if you get sued for things like:
- Causing physical damage to others (such as by breaking someone else’s property or making food that causes someone to get sick)
- Using someone else’s business trademark
- Making false claims in your marketing materials
This type of insurance is incredibly important to have. Even if you haven’t done anything wrong, if someone else thinks you have, that person can sue you. Liability insurance helps you cover the cost of a lawsuit—and if you are found to be negligent, the insurance will also cover what you did wrong.
General commercial property insurance covers damage to the various property and equipment involved in running your business, such as:
- The kitchen equipment on your truck
- The computers you use to run your business
- Property you own or lease to run your business (such as commercial kitchen space)
Commercial property insurance does not cover your actual truck, but you will very likely need to carry it in addition to your standard vehicle insurance policy. Even if your kitchen equipment is damaged in a regular traffic collision, your vehicle insurance will probably not cover the cost of the repairs because the equipment falls under the category of property.
Some insurance companies also offer umbrella insurance coverage. An umbrella policy is one that you can purchase in addition to your other policies. It increases the limits of your existing policy in order to cover extreme situations that may transcend the limits of your other insurance policies. Ask your insurance agent or broker if your food truck should also have an umbrella policy before purchasing your insurance.
Of course, there are a few other instances that may require additional insurance. For example, if your food truck is going to offer catering services, you may need a Certificate of Insurance (COI) for each venue that you want to work with. Many event facilities will not allow you to work on their premises until you can provide a COI that shows them listed as additionally insured on your policy. Don’t worry—that doesn’t mean you need to purchase an extra policy or coverage for each venue you want to work with. You may just need to pay an administrative fee to have the COI instated. Ask your agent or broker if there will be a charge for this service, particularly if you plan to do a lot of catering events.
The COI names the event facility as “additionally insured” as a way of showing that you are adequately covered in case you cause damage to the venue. For example, if one of your team members breaks something in the venue’s kitchen or a server damages a pricey piece of artwork, your insurance policy will cover the costs with a COI in place. Ask each venue you work with to provide you with their specific requirements for the COI in writing and deliver this to your agent or broker.
If you’ll be doing a lot of work for your food truck out of your own home office (particularly if any employees or customers will be meeting you at your home), you should also alert the insurance company that manages your homeowner’s policy. Property and equipment in your home that would typically be covered by your homeowner’s policy may not be covered if they are used for business purposes and the insurance company doesn’t know about it. Make sure your insurance company knows about your home office space so that your business equipment and activities will be covered.
3. Insurance for Your Employees
Finally, you also need to insure your employees. If your food truck has any employees, you need to have workers’ compensation insurance.
Workers’ compensation insurance typically covers an employee’s medical bills and lost pay if he or she suffers an injury on the job. In some states, workers’ compensation insurance could even cover “volunteer” employees, such as a family member who offers to help out when you’re working at a big festival or a friend who runs a few truck-related errands for you during an especially busy week. Most states require businesses to carry at least some workers’ compensation insurance, so be sure to find out what kind of coverage you need to have.
Though you might think that work-related injuries are limited to dangerous jobs like construction and mining, working on a food truck can actually be pretty risky. Your employees are constantly working around hot stoves and scalding fryers, dealing with knives and sharp objects, and rushing around in slippery conditions.
At some point in time, someone is probably going to get hurt—and if that person needs medical attention, you’ll be glad you have workers’ compensation insurance in place. As with liability insurance, you should also keep in mind that someone doesn’t necessarily have to be injured in order to sue you—they just have to claim to be injured. Workers’ compensation insurance protects you and your business in this event.
Starting to worry that a food truck owner’s greatest stresses all revolve around preventing collisions, catering venue damage, and employee injuries? Never fear! In truth, you might not ever have to make use of any of your insurance policies (and if you do, the claims will likely be few and far between). Just remember that no one ever plans to get in an accident—and that’s where insurance comes in.
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Where to Get Insurance: Agents and Brokers
Though we mentioned this earlier, it’s worth repeating—you should always talk to an insurance agent or broker about the specific coverage you need for your business. It’s incredibly important to work with someone who can advise you on the correct types of insurance to purchase for your food truck. You don’t want to guess at what you need or cut corners to save a little money in the short-term, because the long-term costs could have a dramatic impact on your business and your livelihood. Failing to have adequate coverage means that you could lose your entire business from a lawsuit or an accident that totaled your truck. There’s simply no good reason to open yourself up to that type of risk.
Working with an insurance agent or broker also makes the process of getting insurance a lot less daunting and stressful. Your insurance representative will work closely with you and answer your questions whenever you’re unsure about the type of coverage you need. When you’re worried about the ramifications of an employee’s on-the-job injury or you’re trying to track down a COI for your upcoming catering gig, it’s helpful to know exactly who to call and to have someone on your side who will help you find the answers you need.
Though an insurance agent or an insurance broker can help you purchase, manage, and make claims on your insurance policy, they may have different motivations and obligations. Here’s what you need to know before choosing one:
Agents work on commission paid by the insurance company. Independent agents represent multiple insurance companies, while captive agents (also referred to as direct agents or career agents) represent a single company and will only advise you on that company’s policies. While there are many certifications for insurance agents, they are not necessarily required to be certified by an independent regulatory body.
Brokers are similar to independent agents in that they represent multiple insurance companies. However, brokers must undergo specific training and receive certification as regulated by your state. Brokers also take a more comprehensive approach to your business and have a higher obligation to make sure you are adequately insured on all fronts. Because of this, brokers often charge administrative fees in addition to the cost of your insurance policies.
Protect Your Business
Though buying insurance for your food truck might not be as fun as designing a truck wrap or laying out plans for your menu, it is one of the most important aspects of learning how to start a food truck. Proper insurance coverage protects you and your business when the unexpected strikes. Even if you’re not quite ready to hit the road or you don’t think you’ll encounter a particular scenario down the line, you still need insurance—and if the time ever comes to make a claim, you’ll be incredibly glad you have it!
Coming up next week, we’ve got the scoop on another important asset you need to have on your side in case disaster strikes—a great repair shop. In Lesson 17, we’ll show you how to find a reliable food truck mechanic and outline a few tasks you should have done before hitting the road for the first time.
Have more questions about food truck insurance? Wondering how much general commercial property insurance you should carry or whether it’s best to work with an agent or broker? Let us know how we can help in the comments below or on our Facebook page! FoodTruckr is always here to help you decipher the details and work out the information you need to start and run a successful food truck business.
In the meantime, you can also check out this helpful list of some additional resources we found while researching this article. There’s some great information available at the following sites to help you make the right insurance coverage decisions for your business. If you know of another fantastic resource that we missed (especially one that offers specific rules by particular cities or regions!), be sure to share them with us in the comments below.
- Food Service Vehicle Insurance Information from Progressive
- Business Insurance Information from the Small Business Administration
- Food Truck Insurance Information from Insureon
- Differences Between Agents and Brokers from WorkersCompensation.com
- Insurance Terms Glossary
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image by Daniel Rangel