Insurance

An Item 7 insurance row is an opening-premium or deposit estimate for the coverages the franchisor and the landlord will require before keys and before opening. It is not a quote, not a lifetime cost, and not workers’ compensation for the life of the store. A fixed cell means the franchisor printed one number, not that every operator’s binder will match it.

The league table at the end of this chapter includes every insurance-bucket row. All five itemised filings have one.

The five disclosed rows

Brand	Filing label	Low	High
German Doner Kebab	Insurance	$9,000	$18,000
Shah’s Halal Food	Insurance	$6,000	$10,000
The Great Greek	Insurance	$2,000	$6,000
Mad for Chicken	Insurance	$2,500	$2,500
375° Chicken ‘n Fries	Insurance	$2,500	$5,000

Mad for Chicken’s $2,500–$2,500 is a fixed amount. 375° uses the same $2,500 low and then a $5,000 high. GDK’s $9,000–$18,000 is the widest band and the highest. Great Greek’s $2,000–$6,000 sits next to a $1,088,560 high total; insurance is not where that total gets its width.

Those figures are not ranked by how well the brand covers risk. They are estimates of first-term cost under whatever assumptions the footnote states: months of coverage, deductible, whether workers’ compensation is included, whether the premium is financed, whether a landlord-required umbrella is in the number.

What the binder usually has to name

Franchisor and landlord lists overlap and are not identical. A usable checklist, independent of any one filing’s cell, is:

1. Commercial general liability, often with the franchisor and the landlord named as additional insureds.
2. Property insurance on tenant improvements, equipment, and inventory — GDK restaurant equipment $140,000–$175,000, Shah’s fixture package $30,000–$50,000, Great Greek restaurant package $225,964–$248,560, Mad for Chicken FF&E $85,000–$110,000, 375° FF&E $100,000–$120,000 are the hardware values the property form has to speak to, not the premium.
3. Workers’ compensation, in the states that require it as soon as employees are hired for training.
4. Business interruption or extra expense, which is easy to omit from a cheap opening quote and expensive to discover after a delayed opening.
5. Automobile, if the concept uses delivery vehicles or if the landlord requires hired and non-owned coverage.
6. Umbrella or excess, often a landlord criterion rather than a brand one.
7. Cyber or crime, if the franchisor’s required POS and payment flow make them a practical necessity even when Item 7 did not name them.

Item 7 will not itemise that list. Item 8 and the franchise agreement’s insurance exhibit will. The lease will add its own exhibit. The premium is the greater of those stacked requirements, not the Item 7 midpoint.

Insurance is not working capital, and renewals are not Item 7

GDK’s additional funds are $15,000–$20,000 for three months. An $18,000 insurance high cannot be paid from that reserve if the landlord requires a binder before possession. Insurance belongs on the pre-opening calendar with deposits and the franchise fee. Renewals belong on the monthly calendar that feeds working capital after opening.

Great Greek’s additional funds of $35,000–$75,000 for up to six months are large enough to hide an insurance renewal if someone is careless with the footnote. Do not. The $2,000–$6,000 insurance row is the opening estimate; month four’s installment is operating cash.

The FTC’s compliance guide keeps continuing costs out of the definition of initial investment except through the initial period. A twelve-month financed premium straddles that line: the down payment is opening cash, the later installments are monthly. Write both.

Worked example: fixed $2,500 next to a $162,000 reserve

Mad for Chicken prints $2,500 of insurance and $51,375–$162,000 of additional funds for three months, on a 2,000–4,000 square-foot full restaurant. The fixed insurance cell is 0.4 percent of the $687,700 high total. That smallness is not evidence that coverage is cheap. It is evidence that the franchisor printed a round opening number. A landlord-required $2 million umbrella on a pad site, or workers’ compensation in a high-rate class, can exceed $2,500 before the restaurant opens. The additional-funds band is where a buyer might be tempted to absorb the difference. Only do that if the footnote’s list of operating expenses includes insurance; otherwise the $2,500 was a separate promise about a separate check.

Shah’s $6,000–$10,000 next to miscellaneous opening costs of $5,000–$15,000 creates a different temptation: parking an uncovered premium in miscellaneous. Minnesota’s public Shah’s Halal filing either defines miscellaneous or leaves it miscellaneous. Do not use it as a plug for a binder the insurance row already estimated.

Insurance checklist

1. Copy the Item 7 insurance range, including Mad for Chicken’s fixed $2,500.
2. Obtain the franchisor’s required-coverages exhibit and the lease’s insurance exhibit; stack them.
3. Quote general liability, property, workers’ compensation, auto, and umbrella as separate lines.
4. Put the binder date on the possession calendar, before rent commencement if the lease requires it.
5. Put renewals and financed-premium installments on the monthly cash plan.
6. Ask recent franchisees what they actually paid in year one, as the FTC’s FDD walkthrough recommends for opening costs.

Builder’s risk and the gap between construction and opening

Once tenant improvements begin, the property at risk is no longer an empty shell. Builder’s-risk or installation-floater coverage may be the general contractor’s policy, the tenant’s, or a landlord requirement. GDK’s construction-bucket high of $680,000 and Great Greek’s leasehold high of $650,000 are the values that policy has to speak to. The Item 7 Insurance row may already include it, or it may be inside the contractor’s general conditions. Ask the construction contract and the binder, not the league table.

There is often a gap between builder’s risk ending and the businessowners policy starting. A restaurant that is substantially complete but not yet open still has equipment on site: GDK restaurant equipment up to $175,000, 375° FF&E up to $120,000, Great Greek’s package up to $248,560. An uninsured week in that gap is not an Item 7 savings.

Deductibles are a working-capital fact. A $5,000 property deductible on a Mad for Chicken-shaped FF&E line of $85,000–$110,000 is a cash reserve the $2,500 insurance cell did not describe. Write deductibles next to premiums.

Who is additional insured, and who is paying

Franchisors typically require additional-insured status on general liability, sometimes on a primary-and-noncontributory basis, sometimes with a waiver of subrogation. Landlords typically require the same plus notice of cancellation. Each endorsement has a cost. GDK’s $9,000–$18,000 band is the one most likely to have contemplated a full stack; Great Greek’s $2,000–$6,000 and Mad for Chicken’s $2,500 are the ones that most need a broker to say whether the stack fits.

Certificates that name the wrong legal entity fail at possession. Item 1 of the FDD names the franchisor; the lease names the landlord; the tenant’s entity is often a new LLC. The binder has to match the entity that signed both. That is a closing-checklist item, not an Item 7 amount.

The injected comparison below sorts insurance rows by high estimate. Use it to see who printed a wide band. Use the two exhibits to see the binder.