The Comprehensive Insurance Guide for Franchise Owners

Opening a franchise comes with many responsibilities and risks that you must manage in order to protect your investment. 

While excitement builds about embarking on this new business venture, don’t overlook one of the most critical steps - securing the right insurance coverage.

As a franchise owner, you essentially wear multiple hats - owner, manager, investor. The decisions you make can directly impact not just your livelihood, but potentially hundreds of employees and customers. 

Having adequate insurance gives you peace of mind that your business is protected if the worst happens.

This guide will explore the key types of insurance franchise owners need to consider and why partnering with an insurance professional can help you navigate this complex process, no matter what type of franchise you own.

Reduce Your Risk With the Right Coverage

Protecting your franchise investment requires a multi-layered approach. 

While franchise agreements often stipulate minimum insurance requirements, evaluating potential gaps in coverage across core business operations and real estate should be part of your due diligence.

General Liability Insurance

This is one of the most vital policies for any franchise owner, as it covers costs associated with bodily injury, property damage, personal injury or advertising injury claims. It also provides coverage for medical payments or damage related to your premises and products. 

Things to consider:

• Request at least $1 million in general liability insurance limits. This covers legal fees and judgements for slips, falls or food contamination issues. With multiple locations, opting for higher limits gives you better protection.
• Make sure your policy definitions match the exposures of your franchise brand. For example, restaurants need coverage for food contamination and liquor liability. Retail locations require policies to cover customer slip and falls.
• Adding supplemental coverages like abuse and molestation coverage may be wise for franchises who interact with children like tutoring centers or kid gyms.

Workers' Compensation

This insurance covers medical care and lost wages for employees who become injured or ill on the job. Rates vary by state and class codes based on the type of work performed.

Having proper classifications and limits prevents any coverage gaps. 

Things to consider:

• Since you may assume legal responsibility for people working on your premises not directly on your payroll like delivery drivers or contractors, adding a contingent liability endorsement ensures you don’t incur uncovered claims.
• Be detailed when reviewing employee class codes with your insurance agent. Misclassifications of risk could leave you footing the bill for claims down the road.

Commercial Property Insurance

Protect your physical building(s), equipment and inventory by understanding the causes of loss covered under your policy. 

Things to consider:

• Go beyond the basic named perils like fire and theft and add broader causes of loss coverage. This protects against less common issues like equipment breakdown, water backup or lightning strikes.
• If your franchise attracts high traffic like a restaurant, consider adding ordinance or law coverage to pay for building updates required by building codes after a covered loss.
• Purchase adequate limits to replace your building and lost income if your operations are suspended by an insured loss.

Commercial Auto Insurance
If your franchise involves transporting goods or people, securing commercial auto coverage is essential. This covers medical payments, damage to other vehicles and legal costs. 

Things to consider:

• Make sure hired and non-owned auto coverage is included if employees use personal vehicles for deliveries. This protects your business if an employee gets in an accident while working.
• Add rental reimbursement coverage to pay for a rental car while a covered business vehicle is repaired.
• Purchase umbrella coverage to increase your liability protection above the underlying policy limits.

Cyber Liability Insurance

Data breaches and hacking events can financially devastate a franchise. 

Having a standalone cyber policy covers costs involved with data recovery, legal fees, customer notification and public relations assistance.

• Carefully evaluate the policy limits, deductibles and exclusions. Look for added coverages like cyber extortion, contingent business interruption and brick and mortar losses.
• Add social engineering coverage if employees deal with financial transactions or sensitive data. This covers fraudulent scams like phishing or spoofing that result in a data breach.
• Purchase a sufficient limit to match your franchise’s revenue size. This prepares you for large-scale data compromise events.
• Have protocols like mandatory cyber security training, strong passwords, encryption and software updates to prevent incidents and potentially lower premiums.

As this overview illustrates, securing the appropriate insurance plans requires an in-depth evaluation of your specific franchise’s risks and local exposures. 

Avoid taking shortcuts and make sure your policies align with the business model you are adopting. An experienced insurance agent takes the headache out of this process so you can focus on what matters - profitably growing your franchise.

Partner With An Insurance Expert

Trying to piece together insurance coverage without professional guidance comes with potential pitfalls:

• Gaps in coverage leave you financially exposed if claims arise from non-covered causes of loss.
• Inadequate policy limits could lead to personal assets being pursued in major claims.
• Overpaying for premiums due to not understanding important policy conditions and exclusions.

By selecting an independent insurance agency to secure your coverage, you benefit from an unbiased advisor who can objectively evaluate your risks and build a tailored insurance portfolio unique to your franchise model.

As an established insurance agency serving franchise owners for over 20 years, here are some of the key benefits The Allen Thomas Group provides our clients:

• Serve as your trusted risk management advisor to identify potential coverage gaps other agents may overlook.
• Leverage our portfolio of national and regional insurance carriers to provide you with the most competitive rates.
• Remain on call as your advocate for certificate requests, renewals and claims to remove hassles from your schedule.
• Conduct an annual policy review to ensure your coverage evolves with any changes in operations, laws or expansion activities.
• Bundle various insurance plans together for more discounts and added convenience.
• Offer one centralized contact point for all your locations’ insurance needs.

While opening your franchise comes with many moving parts, securing proper insurance protection is a foundational step that anchors your success. 

Partnering with an experienced insurance advisor provides assurance that your hard-earned investment is covered.