Bought a Salon or Spa? Insurance to Have at Closing

On closing day a new salon or spa owner should have four things in force. They are liability coverage for clients and the premises; property coverage for the build-out, chairs, dryers and color stock; business income coverage for a closure; and workers' compensation for employees where the state requires it. Add professional liability, which is aimed at claims that a service caused harm, such as a bad color result or a burn. A business owner's policy (BOP) can package the first three for an eligible salon, and the rest is usually bought separately, but what a carrier will write varies. This guide is for a buyer who just closed and inherited the seller's policies, stylists and lease.

The short answer

Start with liability, property, business income and workers' comp. Then add professional liability for service results, cyber for client and card data, and crime for the register.
In an asset purchase the seller's policies do not move to you, because standard policies bar transfer without the insurer's written consent. In a stock purchase they usually continue. In the standard Insurance Services Office (ISO) general liability form, automatic cover for a newly acquired organization lasts 90 days at most, needs an existing policy and does not extend to a limited liability company (LLC) that is acquired or formed. Other forms differ, and property and workers' comp are not covered by it.
Tell the carrier every service you sell, including any added after the application.
Booth renters, the lease and the lender can each add insurance requirements. Collect them in the first weeks.
A quote or a request is not coverage. Nothing is in force until the carrier binds it.

Which policies should a new salon or spa owner have in force?

No single policy handles every salon exposure. A BOP combines property and liability coverage for eligible small businesses, and carriers differ on which salons qualify. It does not normally replace workers' comp, so check whether yours includes it. The standard businessowners form is also reported to exclude professional services in its liability section, so a BOP alone may not answer a service-result claim.

Salon and spa exposures and the coverage that often responds
What can go wrong	Coverage that often responds	What to confirm
A client slips near the shampoo bowls	General liability, often inside a BOP	Limits, the named insured (the company the policy lists as the insured), whether your services are listed
A burn, allergic reaction or bad result after a color, smoothing or wax service	Professional liability (aimed at claims that the service caused harm), plus the products and completed operations part of general liability (harm that shows up after the work is done)	Which policy takes service-result claims, whether it is claims-made (responds to claims made while the policy is active) with a retroactive date, and whether your BOP or general liability form excludes professional services
Build-out, shampoo stations, chairs, dryers and stock are damaged	Commercial property, sometimes inside a BOP	Replacement cost or depreciated value, whether your build-out is included, and the coinsurance clause (a penalty if limits are set too low)
The salon closes for weeks after a fire or a leak	Business income and extra expense (added costs of operating while repairs are made)	Waiting period, the limit, and that the cover usually needs direct physical damage from a covered cause to start the loss
Employees get strains, burns, cuts or skin irritation	Workers' compensation	Who counts as an employee, state rules, the payroll estimate
Client names and card numbers are exposed, or cash goes missing	Cyber liability and commercial crime	Breach response terms, payment card cover, employee theft cover
An employee claims wrongful termination, harassment or discrimination	Employment practices liability insurance (EPLI)	Claims-made terms, acts before closing, and how wage-and-hour claims are treated (often excluded or only partly covered)

Do the seller's policies still cover you after closing?

It depends on how the deal was built. In a stock or membership interest purchase the company's policies usually continue, though claims-made policies such as EPLI and professional liability often have change-in-control wording. In an asset purchase your new company takes only what the contract transfers, and standard policy conditions bar transfer without the insurer's written consent. See whether to keep the seller's insurance or start over.

A buyer who forms a new LLC to purchase the salon should know that the standard ISO general liability provision for a newly acquired or formed organization does not apply to an LLC and needs an existing policy to attach to, so expect to bind the salon's liability, property and workers' comp at closing, in the new company's name. Where it does apply, it runs only to the 90th day or the end of the policy period, generally not if the acquired business has its own similar insurance, and not for injury or damage from before the acquisition. Carrier forms vary. See adding a newly acquired company to your policies.

Workers' comp has its own rule: in states that use the National Council on Compensation Insurance (NCCI) and in several others, the employer must report an ownership change to the insurer within 90 days, and independent bureaus and state funds have their own routes. See the workers' comp guide for salons.

What do underwriters see when they look at a salon?

Hands-on work. Stylists bleach, dye, chemically change the texture of, cut and style hair, and skincare staff give facials and remove hair with wax or lasers, according to the Bureau of Labor Statistics. A Department of Labor survey found 38 percent of hairdressers face minor burns or cuts every day (a survey share, not a claim rate).
Chemicals and heat. The Food and Drug Administration (FDA) says heating formaldehyde-based smoothing products releases formaldehyde gas, and that some hair dyes can cause allergic reactions. A carrier will want to know which services you sell.
Chairs that may be rented. About 48 percent of hairdressers are self-employed, so some people in your shop may be tenants rather than staff. The coverage gaps guide takes this up.

A med spa, with injectable or laser treatments under physician involvement, is a different underwriting problem, so do not assume a salon policy reaches it. See also insurance for salons and spas.

What should you confirm in the first few weeks?

The named insured. It should be the entity that now owns the salon, not the seller's company.
The services list. Compare the application with today's menu.
Loss runs (the insurer's claim history). Ask for general liability, professional liability and workers' comp. Look for slips at the shampoo bowls, color reactions and water losses, and read them with this guide.
Claims-made terms. Find the retroactive date (the earliest date of work the policy covers) and whether the seller's coverage needs a tail (extra time to report claims after the policy ends).
Payroll and worker status. List who is an employee and who rents a chair.
Property values. Check limits against the cost to rebuild shampoo stations, plumbing fixtures and cabinetry, not the purchase price.
Lease and lender terms. Compare their insurance clauses with the policies, starting with the landlord's additional insured request.
Licenses. In Texas and California the establishment license is issued to a specific owner and location, and other states differ. The contracts and licenses guide explains.

What does a first loss look like in practice?

A hypothetical example. Three weeks after closing, a supply line under a shampoo bowl fails overnight and water runs into the unit below. The neighbor's damage is a liability question. The salon's cabinetry, plumbing fixtures and stock are a property question. The weeks the salon cannot open are a business income question, and that cover usually needs direct physical loss from a covered cause, a waiting period and a limit. The buyer learns whether the named insured, the valuation basis and the business income limit fit this salon or were carried over from the seller's numbers. Checking those three settings in the first month is easier than discovering them after a loss.

What does a seller's salon program often leave out?

A program built for the old owner fits the old owner. That is not a criticism of the seller or the seller's broker. Three things worth checking in any inherited salon program are professional liability for service results, coverage for renters and services added after the application. The coverage gaps guide covers each one.

If you can fix only two things before the first renewal, make them these: find out which policy answers a service-result claim, and send the carrier a written list of every service you sell today. Morrow can review the declarations pages (each policy's summary page) and loss runs you inherited, flag gaps and request quotes. Terms depend on carrier underwriting.

Once the policies are bound, consider sending the binders (the carrier's proof that cover is bound) and declarations pages to your lender and any investors who ask, so the file shows what is in force from the closing date.

Keep reading

Frequently asked questions

Do I need new insurance if I bought a hair salon in an asset purchase?

Usually yes. In an asset purchase your new company takes only what the contract transfers, and standard policy conditions bar transfer of the seller's policy without the insurer's written consent. Have your own policies bound by closing and ask deal counsel about your deal.

Is a business owner's policy enough for a hair salon?

It may cover general liability, property and business income for an eligible salon, but it does not normally include workers' comp. Professional liability, cyber or crime may need separate policies, and some BOP forms exclude professional services. Read the wording.

Does salon insurance cover a client's bad color result?

It depends on the policy. These claims are usually aimed at professional liability, and some general liability or BOP forms exclude professional services. Ask your broker which policy would respond and read the exclusions.

Do I need workers' comp if my stylists rent their chairs?

It depends on your state and on the facts of each working relationship. Some people called renters may be treated as employees. See the workers' comp guide for salons and ask your employment lawyer.

How soon should I tell the insurer that I bought the salon?

Tell your broker before closing so policies can be in force on the closing date. Workers' comp policies in many states require an ownership change report within 90 days, but rules differ by state, so ask which applies.

References

Just bought a business? Get your insurance reviewed.

Send Morrow the declarations pages, loss runs and key contracts you inherited. Morrow can review them against the business you bought, flag gaps and request quotes where it makes sense. Any new terms depend on carrier underwriting.

Request a review Check a contract

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This article is general information, not legal, tax or financial advice, and not a coverage determination. Coverage depends on the actual policy wording, carrier underwriting, your purchase agreement and your contracts. Ask your attorney and accountant about deal and legal questions.

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