Business Insurance for a Lodging Establishment

Business insurance for the lodging business requires careful consideration. This type of business, whether it is a hotel, motel, inn , or a bed & breakfast, needs detailed risk management planning.

The place to start is to answer the following questions:

• What is the value of the property and all furnishings?
  Consider what it would cost to replace the building, all furnishings, tomorrow. If you run a bed & breakfast with a substantial investment in antiques as part of the charm, consider the replacement value of those antiques.
• Will you serve food?
  Consider if your business will serve food and prepare food for the guests. How will this be done? Will a commercial kitchen be a part of the property? Will there be a restaurant?
• Will you serve alcohol?
  Consider whether alcohol will be served at the business. Will such service be incidental to food service? Will there be a convenience store service at the business?
• Will you have employees?
  If employees will work at the business, then you will need workers' compensation insurance and may consider health insurance benefits.
• Are you responsible for guests' property and belongings?
  State laws differ as to the liability of the innkeeper for damage or theft to a guest's property. You should discuss this potential liability and consider insuring the risk.
• Will a vehicle be used in the business?
  Vehicles used for commercial purposes are not covered by personal auto policies.
• Is the business in an area prone to natural disasters?
  The beach may be a nice place to visit, but hurricanes can wipe out beach front lodging. Consider if your lodging is subject to natural disasters.
• Will other businesses be onsite?
  Consider if your lodging business will have other businesses at the site. Will these businesses rent space from you? Or, are these your enterprises?

The size of the lodging business will dictate the types of insurance necessary for the business. Obviously, a multi-million dollar resort with restaurants, stores, spas, and other amenities is a far different business then the bed & breakfast with six guest rooms run by a retiree. The businesses differ in size, but the risks are similar and can be looked at in a general fashion. When meeting with an insurance professional you will want to make sure and review our document checklist and make sure you have all of the necessary dcuments.

The business will need property insurance to protect the buildings and contents. Often the most affordable way for a small lodging owner to secure this insurance is as a part of a business owner's policy. There are also insurers who offer specialized products that are similar to the business owner policy, but are specially tailored to small lodging owners. These policies will have state specific features, but are generally similar to a standard business owner's policy.

The primary consideration will be whether to obtain replacement cost or actual cash value property insurance. Actual cash value coverage deducts depreciation from any claim. While replacement cost insurance provides the current value of the replacement of damaged property. Replacement cost coverage is more expensive. In reality, most lodging businesses cannot return to operation if they do not have replacement cost coverage. Opt for replacement cost coverage. Further, make sure your policy will pay for necessary upgrades caused by new building code compliance.

Some lodgings have unique art, antiques, sculpture, historic value, etcetera. Do not assume your standard property policy will cover such items. Insist on separate scheduled coverage for particularly high value items and, if necessary, pay the extra premium. Most property policies exclude glass breakage, signage, and landscaping. You will need separate coverage for these items if they are necessary. Finally, if your business is in an area subject to natural disasters, remember that flooding, some wind, earthquakes, wild fires, and some other risks may need a separate endorsement to be covered and the premiums will be much higher.

Liability insurance for the lodging business will probably be the most expensive part of the risk management program. The lodging business cannot have "too much" liability insurance. Fires, pool accidents, guest injuries, are just three of the top categories that subject lodging businesses to big value law suits. Liability insurance will provide the owner a lawyer and pay for the judgment if covered under the policy. Good insurers also have substantial resources for the lodging owner to learn how to conduct a safe operation. Consider umbrella coverage on top of the liability policy.

If your lodging business sells products or food to its guests, consider product liability insurance. This insurance protects you from liability caused by injury to guests from products your business sold or supplied. You must also have liquor liability insurance if your lodging sells or allows alcohol on premise.

Innkeeper's Liability insurance is coverage that protects your business from claims for damage, loss, or theft of guest's property while it is on your premises and in your control. State laws may limit the lodging business' liability for damage, loss, or theft of guest's property and this coverage will apply up to that limit usually or up to the limit of the lodging's liability.

You must check with your applicable state department to determine if your business will need workers' compensation coverage. Do not automatically assume you do not because the business is "small" or "family owned." Your state law will dictate the coverage necessary and required if you have employees.

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