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Franchise insurance: what franchisors require and why

What franchise agreements and FDDs require for insurance, how additional insured status protects the franchisor, and what to price before you sign.

4BusinessInsurance · Published October 10, 2026

A franchisor's insurance requirements live in two places: the franchise agreement, which sets the limits, endorsements and proof you must deliver, and the Franchise Disclosure Document (FDD), which tells you before you sign that insurance is a cost and a condition. Expect commercial general liability, workers' compensation and property coverage at minimum, with the franchisor named as an additional insured on your liability policy. The requirement exists because a plaintiff injured at your location will often sue the brand along with you.

Where the requirements are written down

The FTC Franchise Rule (16 CFR Part 436) controls what a franchisor must disclose. Insurance does not have its own FDD item. Instead it shows up in three places:

Item 7 (estimated initial investment) is where the franchisor lists what you will spend before opening. Insurance premiums and deposits are usually rolled into a line item. In the La Rosa Franchising FDD (issuance date March 2, 2020, filed as an exhibit with the SEC), the line reads "Insurance, Security and Utilities Deposits, Dues, Licenses" with a footnote that the amounts include the cost of insurance. Treat any figure like that as the franchisor's estimate, not a quote.
Item 8 (16 CFR 436.5(h), restrictions on sources of products and services) covers what you must buy from the franchisor or approved suppliers, and whether the franchisor earns revenue or other payments from those purchases. Many FDDs put the insurance paragraph here. If the franchisor requires you to buy insurance through a designated agency or program, Item 8 is where that and any franchisor compensation should be disclosed.
Item 9 is the cross-reference table of your obligations. It has a row for insurance that points to the section of the franchise agreement containing the requirement.

Read all three, then read the operative section of the agreement. The FDD is a summary; the contract controls.

What the requirements usually say

Franchisors set their own numbers, so requirements vary by brand and concept; a restaurant or fitness brand will require more lines than an office-based service franchise. A typical package for a brick-and-mortar franchise looks like this:

Coverage	Common franchisor requirement	What to check
Commercial general liability	Per-occurrence and aggregate limits, often with a per-location aggregate	Whether limits are written as "per location" and whether umbrella can satisfy the total
Workers' compensation and employers liability	Statutory limits per state law, plus an employers liability limit	State rules differ on thresholds, exclusions and monopolistic funds, so see workers' comp and benefits requirements by state
Commercial property	Replacement cost on equipment, inventory, improvements	Whether the franchisor wants to be loss payee on buildout
Business income	Often a minimum such as 12 months of coverage	Ongoing royalties and ad fund fees continue after a loss
Umbrella or excess	Sometimes required for higher-exposure brands	Follow-form wording on additional insureds
Commercial auto, liquor, cyber, EPLI	Required by trade or when the operation includes delivery, alcohol, card data or staff	See Employment practices liability insurance (EPLI): what it covers

The insurance clause, line by line

The La Rosa Franchising FDD (issuance date March 2, 2020) is a useful real example because it was filed publicly as an exhibit with the SEC. Its insurance requirement for franchisees of its real-estate brokerage offices, paraphrased in order:

General liability of at least $1 million per occurrence and $2 million aggregate. That matches a standard CGL or business owner's policy limit. The question is whether the aggregate applies per office if you run more than one, and whether an umbrella may make up a higher number later.
The franchisor and its officers, directors, employees, agents and contractors as additional insureds. That list is broader than "the franchisor." A blanket endorsement covering anyone you agree in writing to insure usually reaches all of them; a CG 20 29 grantor-of-franchise endorsement names the franchisor, so confirm how your carrier handles the individuals.
Thirty days' prior written notice of cancellation or nonrenewal to the franchisor. Since ACORD's 2009 revision, the certificate itself does not promise notice. You need a notice endorsement from the carrier, or you take on the duty to notify the franchisor yourself.
Endorsements waiving subrogation against the franchisor. This stops your insurer from suing the brand to recover a claim it paid on your behalf. On workers' compensation, a waiver usually carries a premium charge; see waiver of subrogation: what it is and when contracts require it.
Certificates and endorsements within 10 days after a policy event, such as a renewal or replacement. Calendar renewal dates; a late certificate can be a default before any claim happens.
Franchisor's right to buy coverage on a lapse. If you let coverage lapse, the franchisor may purchase it, charge you the premium, and add a fee. That coverage protects the franchisor first and will cost more than your own.

Why the franchisor wants to be on your policy

When someone is hurt at a franchise location, plaintiffs sue the franchisor on theories such as vicarious liability, apparent agency or negligent brand standards. The franchisor's own policy responds, but the franchisor would rather your carrier take the first dollar. Three mechanisms make that work.

Additional insured status. The ISO form built for this is CG 20 29, Additional Insured, Grantor of Franchise, which adds the franchisor as an insured for its liability as grantor of the franchise to you. Carriers also use broader designated-party forms such as CG 20 26 or a blanket endorsement that adds anyone you are required by written contract to cover. Editions differ in scope, so the franchisor's requirement should name the form or the wording it needs. We cover how these forms differ in additional insured endorsements explained.
Primary and noncontributory wording. The franchisor wants your policy to pay first and not share with its own. ISO CG 20 01 is the standard form. Details are in primary and noncontributory wording in contracts.
Waiver of subrogation. CG 24 04 stops your insurer from recovering what it paid from the franchisor. See waiver of subrogation: what it is and when contracts require it.

None of these is automatic. A franchise agreement that requires additional insured status does not create it; the endorsement on your policy does. The certificate you hand the franchisor shows the endorsement exists but, under the ACORD 25 disclaimer language, it does not amend the policy. Use the Certificate of insurance (COI) review checklist when you receive or issue one.

Franchisee costs that surprise first-time buyers

Required limits that exceed what a bare-bones BOP offers. A business owner's policy is the natural fit for a small location, but its default liability limit may be below the franchisor's number. Confirm the limit and whether it applies per location.

Business income and continuing fees. If a fire closes the unit, royalties, advertising fund contributions and lease payments may continue under the agreement even though sales stop. Size the limit with the business income (interruption) limit calculator and ask whether ordinary payroll and franchise fees are covered. Standard business income coverage (ISO CP 00 30) uses a 72-hour waiting period unless changed.

Landlord requirements stack on top. The lease will have its own list. You may need to satisfy the franchisor and the landlord with different additional insureds and different limits. See insurance requirements in commercial leases.

Mandatory vendors and programs. If Item 8 says you must buy through a designated provider, compare the program's coverage forms and price to your own broker's quote, to the extent the agreement allows. Ask in writing whether the franchisor or an affiliate receives a commission, since Item 8 requires disclosure of revenue from required purchases.

Employment claims. Wage-and-hour and joint-employer allegations against franchisors are active areas of litigation. Employment practices coverage is not always on the required list, but the exposure sits with you.

A hypothetical walk-through

Say a franchisee is opening a fitness studio, and the agreement requires $1 million per occurrence / $2 million aggregate general liability, statutory workers' compensation, and business income for 12 months. The owner asks a broker to quote a package. The broker's checklist: confirm CGL limits meet the number; request CG 20 29 or a blanket additional insured endorsement tied to written contracts; confirm primary and noncontributory and waiver of subrogation wording; and confirm the lease's separate requirement for the landlord. Then send the franchisor a certificate and the endorsement copies before the opening deadline, which most agreements make a condition of the opening date.

Before you sign

Pull the FDD and read Items 7, 8 and 9 together with the insurance section of the franchise agreement.
Send the exact insurance paragraph to a licensed broker and ask for a quote that meets it, including endorsement forms.
Compare the quote to the Item 7 estimate. If it is much higher, ask the franchisor why.
Ask whether any franchisor or affiliate is paid on required insurance purchases.
Calendar the deadline for delivering proof, and the cancellation notice requirement.

An attorney who handles franchise agreements should review termination and indemnity language. Insurance lapses are often a default under the agreement. Use the contract insurance requirements checker to organize the requirements.

Key takeaways

Insurance requirements come from the franchise agreement; the FDD (Items 7, 8 and 9) tells you about them in summary before you sign.
Expect to name the franchisor as an additional insured, often on CG 20 29 or a blanket endorsement, with primary and noncontributory and waiver of subrogation wording.
Price the full requirement before signing and compare it to the Item 7 estimate.
A lapse in coverage can be a default under the agreement, and the franchisor may buy coverage and charge you.
Franchisor requirements and landlord requirements are separate and can conflict, so reconcile them with your broker.

Terms used in this guide

Additional insured A person or business added by endorsement to someone else's liability policy so it can claim directly for suits tied to the policyholder's work or premises. Certificate of insurance A one-page summary issued by an agent or insurer showing what coverage a business carried on the date issued, which confers no rights on the holder. Endorsement A written amendment to an insurance policy that adds, removes or changes coverage, limits or conditions, and controls over the base form where they conflict. Waiver of subrogation An endorsement in which an insurer gives up its right to recover a paid claim from a named party, usually one the policyholder contracted with. Primary and noncontributory Wording that makes your liability policy respond first to a party you named as an additional insured, without drawing on that party's own insurance. Business income Property coverage that replaces net income and continuing operating expenses, including payroll, while a covered physical loss suspends operations.

Related industries

Restaurant insurance What full-service and quick-service restaurants need: GL, property with spoilage, liquor liability, comp, EPLI and cyber, and what leases and licenses require. Gym and fitness studio insurance What gyms and fitness studios need: GL and professional liability, how far member waivers go, abuse and molestation limits, equipment, AEDs and workers comp. Retail store insurance What a brick-and-mortar store needs: BOP or package, stock and theft cover, premises and products liability, comp, cyber, and what landlords require.

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