How to Review Insurance Obligations When Buying a Franchise

Treating insurance as just a minor item in your franchise start-up budget can be misleading. The policy required by the agreement may not provide the protection your business actually needs. After a fire, flood or customer injury, the cost of inadequate cover can outweigh any savings on premiums. Before joining a franchise network, the aim is not simply to arrange insurance, but to establish who bears each risk and how the business will keep operating if a loss occurs.

1. Distinguish contractual requirements from legal obligations

Türkiye has no dedicated franchise law governing franchise agreements. Nor is there a general registration requirement or standard pre-sale disclosure document requirement specifically for granting franchises. The relationship is governed by relevant general legislation, principally the Turkish Code of Obligations No. 6098 and the Turkish Commercial Code No. 6102. The insurance provisions of the Turkish Commercial Code are particularly relevant to insurance contracts.

This means that not every policy requested by a franchisor is compulsory by law. Some insurance requirements may arise from the business’s activities, the vehicles it uses or other specific regulations; others may simply be conditions of the franchise agreement or lease. This distinction does not make contractual obligations any less important: failing to take out a policy that is not legally compulsory may still give rise to a dispute over breach of contract.

Ask the franchisor for the full insurance requirements, including any operating manual and appendices referred to in the agreement. Request three details alongside each item: the source of the obligation, the party responsible for arranging the policy and the party responsible for paying the premium. Replace vague wording such as “all necessary insurance is the operator’s responsibility” with a specific list.

Also compare this list with the requirements of your landlord and any finance provider. If more than one contract requires insurance for the same equipment, that does not automatically mean you need multiple policies. Ask the insurer to confirm in writing how all the requirements can be met.

2. Match the cover to your business’s actual risks

The brand’s standard insurance list can be a starting point, but every outlet has a different location, equipment and level of customer traffic. A business that stores goods in a basement faces different risks from a service outlet in a shopping centre. Have the insurance quotation prepared for your chosen premises and the activities you will actually carry out.

Use a table covering the following areas for your review:

• Physical assets: Which policy covers fit-out, machinery, electronic equipment, stock and leased equipment?
• Liability to third parties: On what terms does the policy cover injuries to customers on the premises or damage to someone else’s property caused by your business activities?
• Activity-specific risks: Do product liability, refrigeration breakdown or goods in transit need separate assessment?
• Employee-related risks: Is employers’ liability cover included, and what are its scope and exclusions?
• Business interruption: Is there cover for lost income or continuing expenses following physical damage?

This is not a list of compulsory policies for every business. Its purpose is to ensure that no risk is left unassessed. Taking out insurance does not replace your health and safety, maintenance or other legal obligations.

Do not rely on the policy name alone. A “business insurance package” may contain exclusions, low sub-limits or security conditions you must meet. Assess the cost of complying with requirements such as alarms, fire precautions and periodic maintenance too.

3. Calculate your costs after a loss, not just the premium

Even if two quotations offer the same premium, the protection they provide may differ. Compare cover limits, sub-limits, excesses, waiting periods and exclusions. An excess is the portion of a loss that your business must bear under the policy terms; a lower premium may mean taking on more risk yourself.

Ask how the values of your equipment and fit-out have been calculated. An old purchase invoice may not reflect the cost of replacing the same equipment after a loss. Underinsurance can affect the amount paid, depending on the policy and applicable rules. Also clarify how you should report seasonal increases in stock levels.

Review business interruption cover separately. It does not cover every fall in sales: the event that triggers cover, the waiting period and the indemnity period depend on the policy. Rent, loan repayments and some franchise payments may continue while the outlet is closed. Rather than assuming which of these costs will be covered, ask for written confirmation.

Prepare a simple scenario: a key piece of equipment is damaged and the business cannot reopen until repairs are complete. List the repair costs, excess, uncovered fixed expenses and cost of temporary arrangements separately. This allows you to base your decision not just on the annual premium, but also on the amount you would have to fund yourself after a loss.

4. Clarify claims management and contractual rights

Check that the policy correctly identifies the policyholder, the insured and anyone else entitled to receive or benefit from a claims payment. Ask in what capacity the franchisor is required to appear on the policy. Protecting the brand owner’s interests does not mean that every loss suffered by the operator is also covered.

Look for answers to these questions in the agreement: Who will notify the insurer of a loss? Who will prepare the supporting documents? Who will decide on repairs? Who will receive the payment? Who will pay any amount by which reinstatement to the brand’s standards exceeds the insurance payout? How will the parties’ obligations operate if the insurer does not pay?

If the franchisor requires a particular insurer or intermediary, ask whether alternatives offering equivalent cover will be accepted. Approval of the policy by the brand is not an independent assurance that the cover is adequate for your needs. Have an insurance specialist review the draft policy terms and a lawyer review how the agreement allocates responsibility.

Practical takeaway: Before signing, compare your table of insurance obligations, the quotation tailored to your business and your sample loss calculation side by side. Obtain written clarity not only on who pays the premiums, but also on which costs you will have to bear after a loss.