Franchise Tutorials Franchisee

Tutorial 13: Intro to Insurance

It’s not the most exciting part about running a business, but it’s one of the most important. Without it, your business stands to lose a lot of income.

Insurance ensures you recover from financial loss during the occurrence of a specific event. From fire to floods to theft or even employee fraud, if you’re not properly insured, your business will suffer.

As a franchisee, there’ll typically be specific insurance requirements outlined in the franchise agreement or operations manual that you are obligated to fulfill. For example, the franchise agreement will normally require the franchisee to add the franchisor as an additional insured third party to the insurance policy and provide a copy of the insurance certificate for the franchisor’s records.

Typical insurance requirements include:

  • Comprehensive public liability insurance: coverage in case a customer, employee or any other person suffers bodily injury while on your premises or as a result of your service or products
  • 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 the business due to damage or destruction of property
  • Employment Practices Insurance: claims such as discrimination, wrongful dismissal or harassment
  • Workers Safety Insurance:  for employees at the workplace
  • Auto Insurance: for delivery vehicles, etc.

Cost of Insurance

With the cost of opening a business, inventory, and hiring, it may be tempting to skimp on insurance coverage. However, doing so could be a costly mistake. Investing in proper insurance protects the franchisee from great financial loss and the franchisor who can claim any lost royalty payments from the insurance company and protect themselves against lawsuits which may arise against them through no fault of their own.

That being said, the cost of insurance will vary depending upon numerous factors including, but not limited to, the geographical area, type of business, deductible amounts and the dollar amount of the coverage. Large franchise systems will often negotiate a group policy with a preferred supplier in order to pass savings on to the franchisee.

In addition to the required business insurance, franchisees will want to look at optional insurance packages to further protect themselves and/or their employees, such as life insurance, disability insurance or health plan insurance.

Consulting with your franchisor, to determine the specific needs of the business, and with an insurance broker is recommended. A list of CFA member insurance companies can be found here.

Ultimately insurance is planning for worst-case scenarios. With insurance in place you can focus your energies on building a successful business and not be worried about financial loss due to hardships that are often outside your control.

The opinions or viewpoints expressed herein do not necessarily reflect those of the Canadian Franchise Association (CFA). Where materials and content were prepared by persons and/or entities other than the CFA, the said other persons and/or entities are solely responsible for their content. The information provided herein is intended only as general information that may or may not reflect the most current developments. The mention of particular companies or individuals does not represent an endorsement by the CFA. Information on legal matters should not be construed as legal advice. Although professionals may prepare these materials or be quoted in them, this information should not be used as a substitute for professional services. If legal or other professional advice is required, the services of a professional should be sought.