04 Apr Insurance for Franchises: Why You Need Coverage
Buying a franchise can be a very successful and exciting business venture. It’s important to protect yourself and your business from unexpected circumstances in order to keep up that success, however. If you are considering purchasing a franchise, or if you already own one, you need franchise insurance. There are many types of franchise insurance policies available depending on whether you are a franchisor or franchisee, among other circumstances.
Insurance for your franchise is just as important as franchise accounting, marketing, and the services your business provides. If you’re considering owning a franchise, there are many factors to first consider.
Strassman Insurance Group provides a number of business insurance options, whether you own a franchise or your own business.
Types of Franchise Insurance
Franchise insurance requirements depend on the needs and services your business provides. For example, public liability insurance is particularly important both if your franchise brings in clients to your location as well as if you go to meet your clients where they are.
However, public liability insurance does not cover employee injury coverage, so additional coverage would still be needed. Your franchise should have product liability insurance if you keep an item inventory, and property damage is crucial if you invest in property for your franchise.
Additional important factors to keep in mind when searching for franchise insurance include protecting your business against claims filed by employees, auto insurance if a vehicle is required for business and protection against business interruption.
Once you have assessed the needs and services of your franchise, then you can consider which franchise insurance policy or policies is most appropriate.
While many types of franchise insurance are available, there are a few most common types of insurance for both franchisors and franchisees.
Some common types of insurance for franchisees include – General Liability, Property Liability, Workers’ Compensation, and Professional Liability.
Some common types of insurance for franchisors include – Franchisor Errors & Omissions Liability (known as E&O), Management Liability (known as D&O), and Employment Practices Liability (known as EPL).
Other frequent insurance coverage types include the previously mentioned product liability, business interruption coverage, and auto coverage. Cyber liability is also crucial with the recent increase in cybersecurity threats. Finally, umbrella liability can provide any extra coverage for your franchise that your primary franchise insurance policy does not cover.
Franchisee and Franchisor Insurance Requirements
Franchisees are generally required to purchase at least one type of franchise insurance, if not more. This requirement is outlined in either the franchise agreement or operation manual provided by the franchisor. The most common types of franchise insurance listed above are most likely to be the types of insurance required for franchises. In most cases, the franchisee will also be required to list the franchisor as an additional third party on the franchise insurance policy. This will protect the franchisee from financial risk and ensures smooth operations for the franchisor.
Why Does a Franchisee Need Insurance?
As a franchisee, you are responsible for the day-to-day operations of your business. Without insurance, your individual franchise could be in financial jeopardy for any number of reasons. Insurance makes sure that your business can continue operating with little to no disruptions in the case of unexpected worst-case scenarios or emergency situations. While your franchisor may require you to purchase some type of franchise insurance policy, not everything may be covered. Franchisees should also consider additional insurance for yourself as the owner and for your employees. These extra insurance plans include life insurance, disability insurance, critical illness insurance, and health plan insurance.
Why Does a Franchisor Need Insurance?
If you are a franchisor or are considering turning your current business into a franchise company, franchise insurance is even more important to the continued success of your business. Insurance for franchisors ensures that business disruptions occurring with individual franchisees will not financially devastate the franchisor. Franchisor insurance requirements are similar to those of franchisees, with more included protection.
As a franchisor, you can set your insurance requirements and disclosures within your Franchise Disclosure Document, or FDD. Having a franchisor liability insurance policy will cover you for any potential claims of omissions, errors, or negligence from services provided to franchisees by the franchisor, which are defined in the FDD. Unfortunately, lawsuits against franchisors by franchisees, employees, and customers are not uncommon. Choosing the right insurance coverage for your franchise is essential for protecting continued business operations against claims, such as vicarious liability.
If you’re searching for business insurance for your Florida franchise, Strassman Insurance Group offers a customizable business owners policy, or BOP. Contact us today to discuss your business insurance options.