There are many different startup costs that are typically needed to launch a franchise, including real estate expenses, supplies and equipment, and working capital. In some cases, you may also have to pay royalty fees, which are legally binding payments that third parties pay to a product or patent’s owner to use said items or copyrighted works.
One of the most important startup expenses you should make, nevertheless, is business insurance. However, you should always know exactly what this type of policy covers and what it doesn’t. Here is a close look at franchise insurance including the franchise insurance cost.
What Does Franchise Insurance Cover?
The exact coverages of franchise insurance typically vary depending on the insurer and your business’s specific needs, although many policies include:
- General liability coverage (including property damage)
- Equipment breakdown coverage: to cover any type of machinery or built-in appliances such as refrigerators.
- Business interruption insurance: to cover you against losses in the event of an unexpected event, such as a natural disaster.
- Commercial auto liability coverage
- Workers compensation: to protect your workers if they become sick or injured on the job.
- Excess liability coverage
There are also coverages like cyber liability insurance that you can add to your franchise insurance policy with an endorsement. This coverage was introduced much more recently than the previously mentioned ones due to the recent exponential increase in data breaches, malware attacks, and other similar cyberattacks. If your franchise has a board of executives, it may also be a good idea to acquire directors’ and officers’ (D&O) insurance. Be sure to speak to your insurance agent to learn more about what coverages you can add to your policy.
How Much Does Franchise Insurance Cost?
The cost of franchise insurance generally depends on several factors, including:
- The number of employees your business has
- Your business’s revenue
- The industry your business is in (restaurant, hospitality, entertainment, etc.)
- Your past claims history
- Your business’s location (state or county, crime levels in area, etc.)
- Your business’s classification (corporation, sole proprietorship, etc.)
- The number of vehicles your business owns or borrows for routine operations (vans, trucks, cars, etc.)
One survey conducted by the Franchise Business Review revealed that franchise owners earn an average annual income of approximately $80,000. However, this figure varies depending on factors such as traffic and area demographics.
Franchise Insurance vs. Franchise Cover
If you own a franchise, you may have heard the term “franchise cover,” although it’s important to understand the difference between this and a business insurance policy. A franchise cover is a reinsurance plan that is formed by claims from multiple policies. This plan becomes triggered once a loss benchmark surpasses a limit established in accordance with the market.
Many first-time franchisees often struggle to meet all insurance compliance requirements. Your policy will normally be evaluated and audited by a professional who has a deep understanding of insurance. Your franchise agreement must clearly state, however, that you as a franchisee will continuously verify that you are meeting all insurance compliance requirements.
Lastly, as with any other business venture, it’s also important to study your industry before making any major decisions. Collect as much information as you can about your competitors (current and potential) to learn about how they secure funding, their advertising strategies, their partnerships, and more.
Additionally, if a “franchise consultant” approaches you, proceed with caution. These individuals often want you to become a franchisee immediately because they receive a substantial cut (up to $10,000 to $15,000) just for securing this deal. Therefore, be sure to ask the right questions before agreeing to such a deal.
Speak To The Insurance Pros
Reach out to the professionals at JMG Insurance Corp to learn more about franchise insurance and its benefits. Since 1916, we’ve been dedicated to providing high-quality insurance solutions to clients in Connecticut, New Jersey, New York, Hawaii, and Massachusetts. As an independent agency, we work closely with many reliable insurance carriers.
No matter what type of franchise you decide to launch, it’s imperative to carry business insurance to protect yourself from a variety of risks and liabilities. Our policies include coverages such as general liability, business interruption, equipment breakdown, commercial auto liability, excess liability, property, and workers’ compensation. Whether you’re the owner of a restaurant chain, hotel business, or a several bowling alleys, these coverages will help you be better prepared to face claims and lawsuits.