Chapter 4 · Insurance
Your LLC limits liability — insurance is what actually pays out when something goes wrong. What an arcade needs, in plain English.
Learning objectives
- Understand general liability insurance and why it's non-negotiable for a shop.
- Know what property, equipment, and workers' comp coverage might matter.
- Get a realistic cost range and know how to buy it.
Why insurance matters here specifically
An LLC protects your personal assets from business liability — but only if you can pay the claim. Insurance is the money behind that protection. A claw shop has people walking around, machines that could tip or jam, electrical outlets, and minor-injury risk (a kid reaching, a machine bumped). Without insurance, even a modest claim could be ruinous. Insurance turns a $50,000 lawsuit into a manageable deductible.
The coverage you'll actually need
1 · General liability (GL) — the essential one
Covers third-party bodily injury and property damage. If a customer is hurt in your shop or damages are blamed on you, GL pays the legal defense and settlement (up to your policy limit).
- Typical limits: $1M per occurrence / $2M aggregate is common and usually required by landlords.
- Landlord requirement: commercial leases almost always require you to carry GL and name the landlord as an "additional insured." Budget for this — it's standard.
2 · Commercial property insurance
Covers your machines, plush inventory, fixtures, and equipment against fire, theft, vandalism, water damage. This is important because your claw machines are expensive and your plush inventory is a real asset sitting there. (Your rented space itself is the landlord's to insure; this covers your stuff inside it.)
3 · Business interruption (a consideration)
Optional but useful: replaces lost income if the shop can't operate after a covered event (fire, etc.). For a small cash-flow business this can be life-saving, but it's not mandatory for day one.
4 · Workers' compensation (when you hire)
If you have any employee, state law requires workers' comp to cover on-the-job injuries. This is mandatory the day you hire anyone. Many sole owners also cover themselves ("owners and officers" coverage). Until you hire, not required — but if you ever have staff, get it (Vol 5 deals with when you hire).
5 · Cyber (only if relevant)
If you're cashless via card readers/QR payment aggregators, your payment processing is usually handled by the payment company (they carry the fraud/PCI liability), so separate cyber insurance is not a day-one need for a small shop. Add it later if you handle customer data directly.
What you can skip at first
Auto insurance (unless you have a delivery vehicle), cyber, and high-limit umbrella are all things you can defer. A general liability + commercial property policy is the day-one core.
Realistic cost
| Coverage | Ballpark annual cost (small shop) |
|---|---|
| General liability ($1M/$2M) | $600 – $1,800 |
| Commercial property (machines + inventory) | $300 – $1,000 |
| Combined typical first year | $900 – $2,500 |
For the cost of a few hundred dollars a month you protect tens of thousands of dollars in machines and, more importantly, your personal assets. This is one of the best "small cost, huge benefit" items in the whole plan. Don't cut it.
How to buy it
- Get quotes from a business-insurance broker (they shop multiple carriers). Big names: Nationwide, Hiscox, The Hartford, and online brokers like Next, Coverwallet, Simply Business.
- Give them your business class ("coin-operated amusement / arcade," NAICS code 713990) and your revenue + inventory value so they price property accurately.
- Ask specifically: "Does general liability cover a retail amusement venue with coin-operated skill/prize machines?" Some carriers classify "arcade" differently; a good broker will match you to the right class.
- Add your landlord as an additional insured (they'll usually ask anyway).
- Revisit annually — as your inventory/machines grow, bump property coverage.
If you cheap out and misclassify an "arcade" as a generic "office," a claim could be denied for not disclosing the real risk. Tell your broker exactly what the business is. The premium is a little higher, but a valid policy is worth infinitely more than a denied one.
Summary
A claw machine shop's day-one insurance is general liability + commercial property, totaling roughly $900–$2,500/year for a small shop. Add workers' comp the moment you hire anyone. Buy through a broker, classify yourself accurately as an amusement/arcade venue, name your landlord as an additional insured, and never let this policy lapse — it's the difference between a survivable accident and financial ruin.
Checklist
- ☐ Got general liability quotes ($1M/$2M) with arcade/amusement classification.
- ☐ Added commercial property coverage for machines + plush inventory.
- ☐ Named your landlord as an additional insured (leasing requirement).
- ☐ Budgeted ~$900–$2,500/year for insurance.
- ☐ Planned to add workers' comp before hiring your first employee.
Looking ahead
Your business is formed, licensed, and insured. In Volume 3 we find and negotiate the space that determines whether anyone ever walks in the door.