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What Types of Insurance Does a Pawnshop Need?

What Types of Insurance Does a Pawnshop Need?

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What Types of Insurance Does a Pawnshop Need?

Pawnshop Insurance Quotes

Costs for business insurance can vary greatly, and getting insurance quotes from multiple companies is recommended in order to get the best pricing.

Coverwallet and Hiscox offer easy business insurance quotes at affordable prices.

What Types of Insurance Does a Pawnshop Need?

Pawnshops are profitable businesses selling second-hand items. They also offer unique loan opportunities. Customers can get a loan in exchange for the shop holding a valuable item as collateral, called a pledge. Often, shops will have repeat customers and many pledged items in their care.

As a result, pawnshops have several liability risks that can cause financial harm. So, insurance is necessary for a pawnshop’s business plan to protect from losses and economic difficulties.

Related: How to start a pawnshop

What Are Some Risks for a Pawnshop?

As with most retailers, pawnshops will face a variety of risks, many of which involve customers. For example, pawnshops may encounter the following risks:

  • Loss or damage to pledged items
  • Harm from selling faulty items
  • Robberies
  • Sudden loss of business

Loss or Damage to Pledged Items

Customers who use the pawnshop’s services entrust a valuable item to the store until they pay back the loan. Accordingly, the shop has a substantial responsibility to protect the customer’s item from loss, theft, or damage. Often, pawnshops hold numerous valuable items that are costly and challenging to replace.

Harm from Selling Faulty Items

If a customer defaults on their loan, the shop acquires the pledged item. However, obtaining pledged items introduces a liability risk because if the shop then sells a faulty item causing injury or property damage, the store may face a lawsuit. In addition, acquired items could be recalled, defective, or damaged, introducing further liability for the store.

Robberies

Pawnshops have an increased risk of robberies because they are often cash-heavy establishments. Cash is commonly a target for theft, and many pawnshops make numerous cash transactions. This means that the shop will have large amounts of cash on-site, attracting robbers. Further, employee dishonesty is an additional hazard. Employees have access to the shop’s cash and valuable items, making internal thefts harmful to the shop’s finances.

Sudden Loss of Business

Pawnshops depend on consistent and regular clientele for profits. But, if the shop closes for repairs following an accident, it loses clients and revenue. A loss of business usually follows a damaging accident, such as a large building fire or a destructive robbery.

Further, losses harm the shop’s inventory. A loss in inventory means an interruption in the normal business flow to acquire a new stock of items. In addition, although relocation is possible, moving may implicate a loss of regular customers and revenue.

Hiscox.com

What Types of Insurance Policies Does a Pawnshop Need?

Although pawnshops have many risks, there are various insurance policies that will cover their hazards and prevent financial harm. Therefore, pawnshops should consider the following types of coverage:

  • Inland marine insurance
  • General liability insurance
  • Crime insurance
  • Business interruption insurance
  • Worker’s compensation insurance

Inland Marine Insurance

An inland marine insurance policy offers coverage for customer-owned items through Bailee coverage. This line of insurance protects the customer’s items while it is in the care of the pawnshop and protects the items from hazards, such as damage, loss, and theft.

In addition, pawnshops that hold antiques or fine art will need to bolster their inland marine policy with a Fine Arts Floater, a type of Bailee coverage that insures hard-to-replace items. Inland marine insurance is valuable coverage for pawnshops with high-value items or that are in high-risk areas.

General Liability Insurance

General liability offers coverage for claims of bodily injury or property damage. More specifically, liability coverage for products and completed operations protects pawnshops from claims resulting from the sale of defective or recalled items.

Unfortunately, defective items can cause serious customer injury and result in an expensive lawsuit against the pawnshop. However, general liability insurance is designed to protect the shop from such claims and covers the following expenses:

  • Medical payments
  • Property damage repairs
  • Legal defense costs
  • Settlements

General liability is a main line of coverage in insurance packages (or business owner’s policies), along with property insurance. Since it covers a wide range of liability hazards, it’s a significant policy for pawnshops.

Crime Insurance

Because pawnshops tend to have large amounts of cash and expensive items like jewelry and firearms, they are often targets for criminals. Crime insurance protects cash from hazards such as 

  • Theft
  • Forgery
  • Fraud
  • Embezzlement

Generally, a pawnshop’s money isn’t insured through other policies lines. For example, in a property insurance policy, the shop’s structure and items are covered for theft, but cash is typically excluded from coverage. Consequently, pawnshops that deal with a lot of cash should consider a crime insurance policy.

This policy protects the pawnshop from lost money caused by theft or robbery, and it also covers money losses caused internally. For example, crime insurance protects the business from losses caused by employees pilfering cash or shortchanging the register.

Business Interruption

Business interruption insurance covers expenses that result from a sudden loss of business. For example, if the pawnshop is damaged and must close until repairs are complete, it will incur expenses, lose income, and still need to make payments on loans and bills.

Fortunately, business interruption insurance covers financial losses, including the following:

  • Lost income
  • Employee wages
  • Payments on regular bills and loans
  • Related temporary relocation costs

Even more so, pawnshops are at greater risk for a lengthy closure following a loss because restocking inventory requires a considerable amount of time—simply due to the nature of pawnshop items. Many items are one-of-a-kind, making them challenging to replace. So, pawnshops benefit from a business interruption policy that helps to cover business costs during a closure.

Workers’ Compensation Insurance

A pawn shop with employees will benefit from a workers’ compensation policy because it pays for expenses following an employee’s injury. Without this crucial insurance coverage (which is required in most states), the owner could be held responsible for the medical costs and lost income for the injured employee. 

A workers’ compensation policy offers employees coverage for expenses involving:

  • Lost income
  • Medical bills 
  • Ongoing rehabilitation care
  • Disability income
  • Legal fees
  • Funeral expenses

A shop with regular maintenance and cleaning can prevent most injuries. However, if an incident occurs, the workers’ compensation policy covers the employee’s expenses and protects the business from lawsuits.

How Much Does Pawn Shop Insurance Cost? 

The cost for a pawnbroker package policy will vary depending on your pawnshop’s unique needs. For example, a pawnshop with multiple employees, a large stock of pledged items, and many employees will need generous liability and loss coverage. Comparatively, a small, owner-operated pawnshop with a small inventory needs less coverage because it has fewer risks.

When an insurance company evaluates the risk, it looks at several elements. Some of which include the following:

  • The number of pledged items in the store’s care
  • The level of security to protect the customers’ pledged items
  • Security measures to prevent theft and robbery
  • Employee vetting and training
  • The value of the shop’s inventory
  • Any past or current lawsuits or insurance claims

In general, the best way to confirm you are getting good coverage and fair pricing is to contact multiple insurance companies for a quote. This way, you can compare coverages, discounts, and prices.

What Types of Insurance Does a Pawnshop Need?

What Types of Insurance Does a Pawnshop Need?

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