Franchise insurance requirements in 259 FDDs: coverage, limits and costs

Franchise insurance requirements by brand: the 259-FDD index

The table lists the minimum insurance each of the 259 franchise systems in the sample requires, as written in its FDD and franchise agreement. Sort any column or search a brand. Required means the document requires the cover now, including cover that applies only when the activity applies (for example auto liability if you use vehicles). Optional or reserved means the FDD only recommends it, offers it, ties it to a non-standard format, or reserves the right to require it later.

Dollar columns show minimums the FDD states. A blank general liability aggregate usually means the FDD sets one combined or per-occurrence limit. The Item 7 columns are the franchisor’s own estimate of insurance costs in the initial investment, joined from our franchise initial investment dataset; they are blank where insurance is folded into another Item 7 line or not listed. Each row links to the FDD on Minnesota CARDS (links verified 2026-10-14).

Which insurance coverages franchisors require

Five coverages form the core of franchise insurance requirements; four others depend on the business. General liability (254 FDDs), workers’ compensation (237), auto liability (215), property (183) and business interruption (143) are required by most of the 259 FDDs. Umbrella, EPLI, cyber and professional liability are each required by fewer than half (Minnesota CARDS FDDs, 2025 to 2026).

The median FDD requires 6 of the nine coverage types tracked here; the middle half require 4 to 7, and 13 require all nine. Workers’ compensation is often written as “as required by law”. Texas lets most private employers choose whether to carry it (Texas Department of Insurance), and several FDDs require it even where state law does not.

The angle we set out to test only half holds. General liability is near universal, but 48.6% of FDDs set it at exactly $1 million per occurrence and $2 million aggregate. 60 FDDs state only a per-occurrence or combined limit, and 54 ask for an aggregate above $2 million. A required umbrella is a minority practice: 43.6% require one, and 42 more only recommend it, reserve it or require it for a special format. Only 34.4% of FDDs require at least $1 million/$2 million general liability plus an umbrella.

Some coverages follow the type of business. Abuse or molestation cover is required by 67% of education and children’s FDDs, 56% of fitness FDDs and 56% of senior care FDDs. Professional liability is required by 94% of health FDDs and 83% of fitness FDDs, and by none of the lodging or automotive FDDs. Other required lines include crime or fidelity bonds (51 FDDs), liquor liability (38), builder’s risk during construction (25) and garagekeepers cover in auto service (14).

Minimum limits: what $1 million per occurrence means in practice

$1 million is the default minimum for almost every liability line. It is the most common general liability per-occurrence minimum (208 of 247 FDDs stating one), the most common auto limit (161 of 186), umbrella limit (52 of 103), cyber limit (45 of 79), EPLI limit (39 of 90) and professional liability limit (69 of 81).

The general liability aggregate is where systems differ. Of the 187 FDDs that state both limits, 67.4% use $1 million/$2 million. 41 FDDs ask for a $3 million aggregate, led by senior and in-home care (14 of 18) and health and wellness (9 of 17). The highest minimums come from a casual-dining chain and a travel-center chain ($10 million of general liability per occurrence) and from hotels, where one brand requires $50 million of umbrella cover.

Cyber and EPLI minimums are lower and more varied: the lower quartile is $500,000 for cyber and $500,000 for EPLI, and the smallest stated limits are $10,000 and $25,000. 249 of 259 FDDs (96.1%) state at least one dollar minimum; the rest leave every limit to the operations manual, which is not public.

Do franchisors require cyber insurance and EPLI?

Cyber and EPLI are common but not standard. 97 FDDs (37.5%) require cyber liability and 28 more recommend or reserve it. 109 (42.1%) require EPLI and 26 more recommend or reserve it. 67 FDDs (25.9%) require both (Minnesota CARDS FDDs, 2025 to 2026).

Cyber requirements are highest in lodging (61%), senior and in-home care (56%) and entertainment (50%), sectors that handle guest, payment or client health records. They are lowest in home services (17%) and automotive (18%). EPLI peaks in fitness (78%), senior care (67%) and education (56%), all staff-heavy formats.

This sample cannot show a rise over time. FDDs issued in 2026 require cyber slightly more often than those issued in 2025 (39.2% versus 33.3%), but the two groups are different brands. Outside franchising the pressure is measurable: the FBI’s IC3 logged 1,008,597 complaints and $20.877 billion in reported losses in 2025 (IC3 2025 report), and EEOC charge receipts rose from 61,331 in FY 2021 to 88,201 in FY 2025, up 43.8% (EEOC Table E1c). U.S. cyber insurance premium fell 7% to $9.14 billion in 2024, the first decline the NAIC has recorded (NAIC 2025 report).

How much franchise insurance costs in Item 7

Franchisors usually estimate a few thousand dollars for insurance, and the period covered varies. 222 of 259 FDDs list insurance only as its own Item 7 line, 1 lists it both on its own and inside another line, 20 fold it into another line and 16 do not list it. Across the 222 stand-alone lines the median estimate is $2,050 at the low end and $5,000 at the high end (middle half $2,500 to $10,500 at the high end), a median 1.1% of each FDD’s total initial investment at the high end (Item 7 data).

Item 7 asks for initial costs and at least three months of additional funds (16 CFR 436.5(g)), so these figures are usually a deposit or the first few months of premium, not a year of cover. 41 insurance lines name a period in months or quarters, 6 name a year, 19 call it a deposit and 157 give no period in the label. Read the footnote before comparing two brands.

Sector matters most. The median lodging FDD estimates $33,750 to $122,500 for property and liability cover on a hotel, about 49.0 times the $2,500 high-end median in business services. Automotive ($17,500) and retail ($8,000) come next. The other ten sectors sit between $3,750 (pet services) and $7,140 (entertainment). For the full Item 7 picture, see our franchise initial investment report and the hotel franchise statistics report.

Can a franchisor buy insurance for you and charge you?

Most franchisors can buy your insurance if you let it lapse, and some add a fee. 230 of 259 FDDs (88.8%) let the franchisor buy required cover the franchisee fails to carry and charge the franchisee for it. 42 of those state a percentage surcharge on top of the premium, from 5% to 50%; 10% is the most common (18 FDDs) and the median is 15%. 79 more state an administrative fee, a reasonable fee or the franchisor’s costs, sometimes with interest.

Buying through the franchisor by default, not only after a lapse, is rarer. 10 FDDs have the franchisor or an affiliate place a required policy, 17 require at least one policy through a designated or listed broker or insurer, 16 offer an optional program or list, and 37 reserve the right to designate a source later. 23 FDDs (8.9%) describe an insurance program the franchisor or an affiliate runs or sells.

The rule on required purchases asks franchisors to disclose revenue from them in Item 8 (16 CFR 436.5(h)(6)). In the 27 FDDs with a must-use insurance source, 74.1% report franchisor revenue from required purchases, against 62.4% of FDDs with no insurance source rule. That is an association across all required purchases, not proof of insurance commissions; our franchise supplier rebates report covers the revenue data.

Additional insured, notice and insurer-rating terms

Additional insured status is a near-universal term. 257 of 259 FDDs (99.2%) require the franchisee’s policies to name the franchisor, and often its affiliates, as an additional insured. That lets the franchisor claim directly under the franchisee’s liability policy when it is sued over something that happened at the franchised business.

231 FDDs (89.2%) set a notice period before a policy can be cancelled or changed; 211 of them use 30 days. 148 (57.1%) set a minimum A.M. Best insurer rating, most often A- (80 FDDs) or A (59). 250 (96.5%) let the franchisor raise limits or add coverage types during the term, so the minimums in the table can grow after you sign. Item 9 of every FDD points to the insurance section in its obligations table (row n, 16 CFR 436.5(i)); our franchise agreement terms report covers the other agreement clauses.

What the FTC Franchise Rule says about insurance

The FTC Franchise Rule does not set insurance minimums; franchisors do. The Rule’s Item 8 paragraph requires disclosure of goods and services a franchisee must buy from the franchisor, its designee or approved suppliers, or under its specifications (16 CFR 436.5(h)). It does not mention insurance, but franchisors use Item 8 to state required coverage because insurance is a required purchase under their specifications. Item 7 covers the estimated cost, and Item 9 cross-references the agreement section.

The FTC’s compliance guide says laws that apply to every business, such as no-fault liability insurance requirements, need not be listed in Item 1 (FTC compliance guide). The FTC’s consumer guide lists insurance among the costs a buyer may pay to open (FTC consumer guide). The SBA lists workers’ compensation, unemployment and disability insurance as legal requirements for businesses with employees, with rules that vary by state (SBA).

What a franchise buyer should price

Price the policies the FDD names, not the Item 7 line. A buyer can use the index to build a quote request before talking to an agent:

• List every coverage the FDD and franchise agreement require, with limits. In this sample the median FDD requires 6 of nine tracked coverage types.
• Check whether the aggregate, umbrella and per-location rules apply to you. 54 FDDs require more than a $2 million aggregate, and some multiply limits per location or per vehicle.
• Read the Item 7 insurance footnote for the period it covers. The median high estimate of $5,000 is often three months of premium or a deposit.
• Ask whether you must use a designated broker or the franchisor’s program (27 FDDs require one) and what that program charges.
• Note the cost of a lapse. At the median stated surcharge of 15%, franchisor-bought cover priced at the median Item 7 high estimate would carry about $750 in fees.
• Budget for workers’ compensation separately. BLS puts the private-industry average at $0.43 per hour worked in June 2026 (BLS ECEC), and premiums vary widely by occupation and state.

Our franchise costs guide and buying a franchise guide cover the other costs and steps.

Methods and blind check in brief

We read the insurance paragraphs in Item 8, the franchise agreement’s insurance section, Item 6 rows and Item 7 lines of the same 259 FDDs used in our franchise royalty rates report, and coded 31 fields per brand under a written codebook. After the first pass was frozen, one independent checker coded 20 random brands blind from the FDD text. The two agreed on 96.7% of 520 field comparisons. Re-reading every disagreement against the FDD found 15 first-pass errors (2.9%), 0 checker errors and 2 cases settled by a clearer codebook rule. Each error pattern (missed notice periods, buy-and-charge clauses in Item 7, reserved umbrella cover) was then searched for in all 259 FDDs and fixed; data/corrections.csv logs every change.