Franchise insurance

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Franchise insurance
See also

Franchise insurance lies in the fact that franchisee should buy an insurance policy or policies protecting franchisee and franchisor and also their employees and officials against losses, responsibility or expense whatsoever in according to fire, property damage, personal injury, death, products liability or theft, occurring upon or in connection with such place or by reason of franchisee's operation on or from such premises (H. Brown i in., 2013,s. 2-22, 2-23)

Franchise's agreements

Franchise's agreements require to obtain insurance to cover business operations. In case of brick-and-mortar business the insurance requirements will be substantial, while in case of home-based establishment the insurance requirements might be minimal. In all cases it will be required that the franchiser be called as an "additional insured," what means that the franchiser enjoys the same coverage as the franchisee, even if the franchiser not pay for the coverage. Every franchisee can ask the insurance broker to look at the insurance conditions and make sure that they are reasonable. The insurance broker can also provide quotes of insurance premiums (R. Grossmann, 2017)

Typical requirements in a franchise agreement

Usually in a franchise agreement, there will be specific insurance conditions. Routine insurance conditions might include (W. Maillet, 2014, s. 92, 93):

  • "Comprehensive public liability insurance - liability imposed by law due to bodily injury and property damage both on and away from the premises
  • Commercial general liability insurance
  • Product liability insurance.- for physical loss or damage to inventory
  • Property damage insurance for property damage due to fire, flood, smoke, vandalism, etc
  • Business interruption insurance for financial loss from closing of the business due to damage or destruction of property
  • Employment practices insurance coverage arriving from such claims as discrimination, wrongful dismissal or harassment
  • Workers safety insurance coverage for employees at the workplace
  • Auto insurance - coverage for delivery vehicles, etc"

Types of franchise insurance

Types of franchise insurance which are reqiure (H. Brown i in., 2013, s. 4-79 - 4-81):

  • Property Insurance - It is required to purchase "all risk" insurance in amount at least costs of all business assets
  • Credit Life Insurance: It is require that the franchisee to buy life insurance in amount enough to pay off all of the business creditors in the case of the franchisee's death. It is necessary only if the franchisee as an individual
  • "Building Insurance: If the franchisee owns the building in which it operates, he or she must adequately insure at replacement cost. In the event the building is destroyed by fire the franchisee is obligated to use such proceeds to rebuild and recommence operation as soon as possible"
  • Other Insurance Required by Law : The franchisee needs to pay for all legally required insurance
  • Other Insurance: All insurance required by contracts needs to be pay by the franchisee


Author: Kinga