A franchise is a business like any other in certain fundamental ways: you need working capital and sufficient staff to run it; making its products or services unique can be key to driving its success; and it can face many different risks. Therefore, it’s essential to protect your franchise, and a highly effective way to accomplish this is by purchasing insurance for franchises.
What Is Covered With Franchise Insurance?
The exact coverages of a franchise insurance policy often vary depending on the insurer, but many standard policies cover:
- General liability: protection against claims related to onsite client injuries;
- Property coverage: Shields your building and its contents;
- Commercial auto liability: protection of any owned or borrowed business vehicles;
- Equipment breakdown: Malfunction of equipment such as laptops or refrigerators;
- Business interruption: Loss of income resulting from a shutdown forced by unexpected events (e.g. a fire or natural disaster);
- Workers’ compensation: Protection against claims from workers who become injured or ill on the job; and
- Excess liability: Coverage beyond your policy’s limits.
Of course, the cost of franchise insurance policy typically depends on factors such as:
- The number of employees your franchise hires
- Your business’s annual revenue
- The type of supplies or equipment you use and their replacement cost
- Your past claims history
According to CoverWallet, the average cost of general liability insurance for a small business normally falls between $750 and $2,000 per year. However, you may need to pay more to protect a franchise, especially if it has grown significantly.
Risks of Not Having Insurance For Franchises
Fines And Penalties
In many states, businesses that fail to acquire basic insurance coverages such as general liability and property coverage may face certain fines and penalties. If you don’t have workers’ compensation coverage, for instance, any employee who becomes sick or injured can’t receive benefits and your state’s Workers’ Comp Board can potentially fine your franchise.
Additionally, many local and state governments have laws dictating insurance compliance requirements for businesses, so always be sure to stay informed about these.
Loss Of Revenue
If you don’t carry insurance, you will likely have to pay more to resolve or settle a claim, and this can significantly hurt your business. If you fail to generate enough revenue to adequately compensate all of your employees and cover operating expenses (including rent, utilities, etc.), your franchise may go out of business. This is especially true if you’re forced to pay a large sum to recover from an unforeseen event, such as a fire or data breach. Franchisees also typically have to pay an up-front fee of several thousands of dollars.
Lack of insurance can also lead many franchisers and other individuals or organizations to feel reluctant about partnering with you. Therefore, be sure to secure basic coverage in order to make a positive first impression.
As with any other type of insurance, remember to carefully evaluate your needs and speak with an experienced insurance agent before choosing a policy. A recent survey conducted by AdvisorSmith revealed that approximately three in four small businesses (76.2%) experienced an incident in 2020 that could have potentially resulted in an insurance claim. However, one in three companies (34%) lacked any type of business insurance. The top two types of events respondents experienced were crimes such as theft and fraud (32%) and employee injuries (31.3%).
Whether you decide to launch a restaurant, hotel, or entertainment franchise, this endeavor requires a lot of planning and decision-making. Therefore, be sure to research your competition and set clear objectives before making your franchise grow.
Speak To The Experts On Insurance For Franchises
Reach out to the professionals at JMG Insurance to learn more about the risks of not carrying insurance for a franchise. Since 1916, we have been dedicated to providing high-quality insurance solutions to clients throughout Connecticut, New Jersey, New York, Hawaii, and Massachusetts. As an independent agency, we work closely with several well-known and reliable insurance carriers.
Regardless of the type of franchise you have started, it’s critical to carry insurance in order to protect your organization and its employees against certain fundamental risks and liabilities. At JMG, we understand what goes into launching a franchise and know that an insurance policy can be extremely helpful in addressing those risks. Our policies include coverages such as general liability, business interruption, equipment breakdown, commercial auto liability, property insurance, and workers’ compensation. If you need additional coverage, you can also acquire excess liability coverage.
Get in touch with JMG or visit us online for more information about our franchise insurance policies.