Starting an insurance franchise is exciting. You get to be your own boss, you get to help bring jobs to your community, and you can finally achieve your goal of being a successful entrepreneur. But one thing you need to ask yourself is this: Who insures the insurance franchise?
This article explains four important types of insurance you should know about as an insurance franchise owner: general liability insurance, commercial auto insurance, worker’s compensation insurance, and unemployment insurance.
1. General Liability Insurance
General liability (GL) insurance is one of the most basic types of insurance coverage for franchises. GL policies protect companies from the risks of normal business operations. General liability coverage includes:
- Bodily injury: A client is injured while visiting your office.
- Property damage liability: An employee accidentally damages your client’s property while visiting their office.
- Personal injury: A client sues your insurance franchise for libel or slander.
When you make a GL claim, the insurance company will typically pay for:
- Medical and funeral expenses
- Costs to repair or replace damaged property
- Court costs and settlements
Is General Liability Insurance Required for Insurance Franchises?
Unlike auto liability insurance, general liability coverage is not usually required by law. However, your commercial landlord may require your company to maintain an active GL policy as part of the lease agreement. In addition, many franchisors and larger clients require general liability insurance before agreeing to do business with you. Look carefully through your lease, franchise agreement, or client contract so that you know how much general liability coverage you need.
Even if you’re not contractually required to maintain GL insurance, it’s a very good idea to do so. If your company is sued for any reason, the legal and administrative fees can easily consume your entire cash flow, which means that you won’t have any money to pay the bills or your employees. General liability insurance helps you keep your business operating until you can resolve the lawsuit.
2. Commercial Auto Insurance
Commercial auto insurance is a lot like personal auto insurance except that it covers vehicles when they’re used for business purposes. Commercial auto insurance can cover personal vehicles — those owned by the insurance franchise owner or employees — as well as vehicles owned directly by the insurance franchise.
Options for commercial auto insurance include liability, collision, and comprehensive coverage. Most commercial policies offer higher limits than typical personal auto insurance, and coverage extends to any employee who uses the car for business.
Is Commercial Auto Insurance Required for Insurance Franchises?
If you or your employees regularly drive a car for business purposes, then your insurance franchise must have active commercial liability auto insurance for that car. Business purposes can include:
- Driving clients to work or entertainment events
- Driving to see multiple clients a day
- Driving regularly between franchise locations
Note that commuting and driving to lunch aren’t considered business purposes.
Keep in mind that the company needs to provide commercial auto insurance coverage for personally owned vehicles with personal auto insurance coverage. When driving a personal vehicle for business purposes, personal auto insurance coverage doesn’t apply. So, if you’re using your car for business without an active commercial insurance policy, then you can be pulled over for driving without insurance. And just like with driving without personal auto insurance, you can face fines and license suspension. You may even need to file an SR-22 certificate of financial responsibility before you can get your license back.
Finally, if your insurance franchise has financed a company car, the financing company may require commercial collision and comprehensive insurance until you’ve paid off the car. Your financing agreement will contain details on how much coverage you need.
3. Worker’s Compensation Insurance
Worker’s compensation insurance — also known as worker’s comp — protects you and your employees if they’re injured on the job. While office employees at an insurance franchise aren’t likely to get injured in the workplace, accidents do happen. Common office-related injuries include:
- Repetitive stress injuries (RSIs)
- Slips and falls
- Back pain
- Overexertion
When someone does get injured in the workplace, workers comp covers expenses related to:
- Immediate care such as ambulance rides, emergency room fees, and surgeries
- Ongoing care such as medication and physical therapy
- Lost wages from missing work due to injury
- Lawsuits related to workplace injuries
Is Workers’ Compensation Insurance Required for Insurance Franchises?
In most cases, your insurance franchise will need to have workers’ compensation insurance if it hires employees. However, the exact requirements and exceptions vary from state to state. Your business may not need workers’ compensation insurance if:
- The insurance franchise owner is the only employee
- Your business has fewer than a certain number of employees
- You hire family members
Each state is in charge of regulating workers’ compensation laws as well as setting penalties for non-compliance. Many states take workers’ compensation very seriously and consider it a criminal offense not to have adequate insurance. Typical penalties can include:
- Minimum fines as high as $100,000
- Additional fines for each day your business doesn’t have workers’ compensation coverage
- Felony charges and jail time
Needless to say, always stay on top of workers’ compensation coverage for your insurance franchise. Even a few days of lapsed coverage can effectively shut down your business.
4. Unemployment Insurance
When someone loses their job, unemployment insurance pays money — usually about half the person’s previous salary — until they can find a new job. Unemployment insurance is run by the states with federal oversight, and each state sets its own requirements for unemployment eligibility and obligations. To qualify for unemployment benefits, you must meet two key requirements:
- You must have lost your job through no fault of your own — quitting or being fired with cause makes you ineligible for unemployment benefits.
- You must have earned a minimum amount of money or worked at the company for a minimum amount of time — requirements vary from state to state.
While unemployment insurance benefits are for workers, it’s your insurance franchise business that pays for unemployment insurance through special federal and state taxes, which are based on your company’s payroll.
In three states — New Jersey, Pennsylvania, and Alaska — it’s employees rather than employers who pay state unemployment taxes. However, your insurance franchise is still responsible for deducting these taxes from your employees’ paychecks and submitting them to the state on their behalf.
Is Unemployment Insurance Required for Insurance Franchises?
Just like worker’s compensation and other business taxes, your insurance franchise must pay unemployment insurance if it isn’t exempt. If you’re located in New Jersey, Pennsylvania, or Alaska, keep in mind that you’ll still be liable to pay your employees’ state unemployment insurance even if you didn’t deduct the amount from their paychecks.
In some cases, your insurance franchise is exempt from paying unemployment insurance. Each state sets its own exemptions, but here are the most common ones:
- Your insurance franchise had hired employees for fewer than 20 weeks in the year.
- You hire close family members (spouses, parents, or children).
- You hire insurance agents who work only on commission.
Remember that unemployment insurance is both a state and federal obligation. If your business is caught not paying unemployment tax, your business can face high fines, and you can even be held criminally liable as the business owner. Plus, you’ll need to pay the taxes you owe, with interest.
Insurance Franchises Need Insurance, Too
Running an insurance franchise or any small business is about managing risk. Some insurance is mandatory, some is optional, but all insurance is designed to protect you, your employees, and your business against the unexpected. At Confie, we work with franchise owners around the country to set up successful enterprises that make their communities safer and more prosperous. Get in touch with us today to learn more or give us a call at (714) 252 2500.
