What You Should Know About Insurance For Franchises
If you are thinking of starting a franchise, you should factor in insurance issues in your capital estimation just as you would do for non-franchise businesses. Here are some of the franchise-specific issues you should know as far as insurance coverage is concerned:
The Franchisor Won't "Handle Things" On Your Behalf
If you have never been in the franchise industry or you haven't researched it properly, you may think that the parent company gets to handle everything on the insurance coverage side of things. However, this is not the case at all, and it is your role as the franchisee to see to it that you have the right coverage. This makes sense if you consider these facts:
- The franchisor may be headquartered in a different state from yours, which means you will be operating under different insurance laws and regulations
- Your franchisor will not be in charge of your hiring and retention acts
- Your franchisor will not be overseeing your day-to-day business operations
The Franchisor Will Want To Be an Included Third Party in the Policy
Even though the franchisor will not be micromanaging your operations or insurance matters, it does have an insurable interest in your franchise because it will lose money if your business fails or gets sued. Therefore, expect the franchisor to request to be named as an insured third party in your insurance policy. This way the franchisor won't hold you liable for the covered risks or losses.
The Franchisor May Have a Preferred Carrier
Some companies will also require you to buy insurance coverage from specific carriers if you want to operate their franchise. This may seem too restrictive, but it makes sense if you consider that franchisors are big businesses that can negotiate good insurance discounts. This will also be of benefit to you because you will be able to enjoy low insurance rates.
You Are Likely To Need Additional Coverage
Lastly, the franchisor does have a say on the minimum coverage you should purchase, but this doesn't mean you can't purchase additional coverage. In fact, you should evaluate your risk exposure and purchase additional coverage as needed. For example, you should consider disability insurance so that you don't suffer financial loss if you get too sick or injured to work.
The best thing to do is to locate some insurance services and speak with an insurance agent as early as possible. That way, you will have a clear view of your expected insurance issues and the additional coverage you should buy.
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