Insurance for a franchise in Mexico: what to check before buying

A fire, theft or injury to a customer can turn a viable investment into a financial burden that is difficult to sustain. Before buying a franchise in Mexico, simply asking whether it has insurance is not enough: you need to know what is covered, how much you would have to pay yourself and how the brand’s requirements fit with those of the landlord. Sharing a brand does not automatically mean sharing the same insurance protection.

1. Distinguish legal obligations from contractual requirements

In Mexico, franchises are specifically regulated by the Federal Law on the Protection of Industrial Property (LFPPI). Article 245 establishes the franchise framework and the obligation to provide pre-contractual information; Article 246 requires a written contract containing certain minimum provisions. This legislation does not prescribe a universal insurance policy for all franchised businesses.

Specific insurance obligations may depend on the business activity, applicable local rules, the franchise agreement and the lease. Cover required by the brand should therefore not be described as legally compulsory unless the relevant legal provision is identified.

Insurance contracts are governed by Mexico’s Insurance Contract Law. Ask a lawyer to review the contractual obligations and an authorised insurance agent to check them against the cover available.

Before committing any money, request a written list of insurance requirements: risks covered, sums insured, excesses, policy periods, evidence of cover and the consequences of failing to maintain it. If the franchisor can change these requirements, negotiate how changes will be communicated and how long you will have to comply.

2. Check what each policy actually covers

The statement ‘the brand has a group policy’ does not prove that your premises are covered. Request evidence that your company, location and business activity are included, together with the applicable policy terms. A summary certificate may omit important exclusions.

Structure your review around four questions:

• Property: Are the premises, fit-out, machinery and stock insured? On what valuation basis would a claim be paid?
• Public liability: What injuries or damage to customers or other third parties does the policy cover, and which activities does it exclude?
• Business interruption: Which losses or expenses does it cover during a closure, and what event must cause that closure?
• Specific risks: Do you need protection for refrigerated goods, goods in transit, electronic equipment or other risks particular to the business?

Do not assume that property damage cover automatically includes losses from being unable to trade. Business interruption cover is usually subject to specific conditions, waiting periods and time limits.

Also ask what security and safety measures the insurer requires. Alarms, maintenance or fire protection systems may entail additional costs and affect whether a claim is paid. Check that these requirements are compatible with the brand’s approved design.

3. Align the requirements of the brand, landlord and insurer

The franchise agreement and lease may require different insurance cover for the same premises. Compare their requirements before taking out a policy: cover that satisfies the franchisor may not meet the landlord’s requirements.

Prepare a table showing each asset or risk, who must insure it, who pays and who would receive any claim payment. Distinguish the building from your fit-out, leased equipment from equipment you own, and third-party goods from your own stock.

The policyholder, the insured and the beneficiary are not necessarily the same person or entity. Ask for an explanation of each party’s role. If you are asked to name the franchisor or landlord as an additional insured or beneficiary, confirm the scope of that designation and its effect on your rights.

Do not assume that two policies covering the same asset will produce two full claim payments. Tell the agent about any potential overlap and ask for instructions on handling a claim. Also establish who keeps supporting documents, submits the claim and authorises urgent repairs.

4. Calculate the costs you will still have to bear

Compare quotations on the basis of equivalent cover, not just the premium. A cheap option may leave you carrying more risk through excesses, co-insurance contributions, sub-limits or exclusions. Ask for a written explanation of each term and an example applied to your premises.

Run through a scenario in which the premises suffer insured damage and close temporarily. Identify how much you would need to pay before receiving a claim payment, which expenses would continue and which would not be covered. Check whether rent, royalties and other obligations remain payable; insurance does not suspend them automatically.

Before signing, obtain a quotation based on the actual location, business activity and equipment. Establish when cover needs to begin: you may face risks during the fit-out, before welcoming your first customer.

Practical takeaway: Before buying, prepare a table of cover, responsibilities and costs you must bear yourself. If nobody can explain who pays and who receives the claim payment following an insured event, an important part of the investment still needs to be resolved.