Insurance protection for buying a franchise

THE FRANCHISEE

BUSINESS INSURANCE AND PERSONAL FINANCIAL PROTECTION

Anyone who is considering purchasing a franchise will have to deal with a number of matters which relate both to business and personal insurance, and these broadly fall under three main headings

• Insurance Protection for the Business
• Personal Financial Protection for the Franchisee
• Planning for the Future

The following is a brief outline of what this is likely to involve.

Insurance Protection for the Business

Having invested money in a Franchise, it is very important that adequate insurance protection is arranged both for the assets of the business which you have purchased, and also for the liabilities which you will incur in running the business.

The detail of what risks you need to insure will obviously vary from business to business. Indeed many of them will be set out in the Franchise Agreement and for such risks cover will be mandatory.

That said, most basic commercial insurance policies incorporate some or all of the following

• Fire, Theft and Damage cover for buildings, contents or stock
• Business Interruption insurance to meet your on-going costs and expenses if a fire destroys your main place of work
• Liability insurance for claims from either employees or members of the public if they are injured or their property is damaged and you are held responsible
• Transit insurance to cover your goods whilst they are being carried in your own vehicle or by a haulier
• Money insurance if you lose cash or cheques

Many Franchisors make life easier for their Franchisees by running Group Insurance Schemes which their Franchisees are encouraged to join.

However whenever considering Business Insurance protection for a Franchise, you do need to be aware of a number of other matters

• The Franchisor-Franchisee relationship is an unusual one which results in a substantial degree of inter-dependency.

In insurance terms this means that a loss suffered by one party can affect the trading of the other. For example, a fire which occurs at a Franchisor's depot can easily disrupt the supply of goods to the Franchisee. Again a claim for injury brought by a member of the public can as easily involve the Franchisor as the Franchisee, as one is, in a sense, the trading extension of the other.

• For these reasons "standard" insurance policies are insufficient. They need to be adapted to meet the specific needs of the Franchisor-Franchisee relationship.

You are therefore advised to do the following

• Ask your Franchisor for details of his Franchisee Insurance Scheme. If none exists, suggest one be established; they are almost always beneficial and greatly assist in protecting the whole Franchise by establishing prudent levels of cover at competitive cost.

Always seek professional help and advice from those specialising in this field. Never simply buy on cost.

Personal Financial Protection for the Franchisee

One of the attractions of buying a Franchise is that you get to work for yourself and run your own business. The upside of this, of course, is that you can benefit from your own labour.

Working for yourself does, however, also carry risks, and one of the most obvious is what happens if you have an accident, or are off sick, or were to die.

Fortunately there are insurance policies which can be arranged to give you protection, and very briefly they come in the following forms

1. Accidents

A minor accident may hinder or prevent you from working for a short period of time; a major accident could have much more far-reaching consequences.

Accident insurance is readily available. It will make a lump-sum payment if you suffer some permanent disability such as loss of a limb or eye, and can also include payment of a weekly amount if you are unable to work following an accident.

The weekly benefit can be set at around 2/3rds of your annual weekly wage, and payment of any benefit under such policies usually runs to a maximum of 2 years, commencing pretty well immediately after the accident.

2. Sickness

Insurance to provide payment of income in the event of sickness comes in two main forms

1. Short Term Sickness, for up to 1 year, which can usually be added to a Personal Accident policy as outlined above.

2. Long Term Sickness, which essentially means payment of income up to your normal retirement age. This is more normally known as Permanent Health Insurance.

Payment of any benefit under a Short Term Sickness policy usually commences 1 or 2 weeks after the illness begins. However under a Permanent Health Policy, it is normal for there to be a rather longer "Deferred Period", commonly 3 months.

3. Hospital Expenses

The ability to receive hospital treatment when you need it rather than have to wait can be important for anyone running their own business, and Private Medical Insurance is readily available to meet this need.