Product liability insurance is a type of insurance that covers your business against claims that a product manufactured or sold led to incidents causing harm to someone’s possessions.
Some insurers provide this coverage as a separate policy, while others include it as part of general liability insurance.
Without product liability coverage, your enterprise could be responsible for out-of-pocket expenses while dealing with various general liability claims resulting from product defects.
If your business involves the production or sale of products, your policy would be responsible if your products caused harm to others.
For instance, your business might face a lawsuit if a customer is injured due to a defect in a tool it sells. Given the potential financial burden of lawsuits, product liability insurance is an essential element of a comprehensive small business insurance policy.
Why Should I Get Product Liability Insurance
With the efforts small businesses invest in producing top-notch goods, there remains a possibility of product malfunction.
For instance, a children’s apparel company might create clothing with an improper fit, posing a suffocation risk.
Also, a food service business could inadvertently include an allergen in their pastries, triggering allergic reactions in customers.
The defects leading to bodily injury or property damage are a serious risk that neither your business nor your customers can avoid.
These are the reasons why you should understand the importance of product liability coverage for all businesses involved in selling products.
How It Works
Product liability insurance offers coverage for incidents where your business becomes the subject of a lawsuit related to product-related harm.
Encountering a product liability lawsuit can be financially exhausting. This insurance goes beyond serving as a product guarantee or warranty; it essentially covers businesses from the repercussions that may occur if a product causes injury or damage to third parties.
Consumers can get hurt due to various factors such as manufacturing, design, marketing, or misuse of a product. Even if the product is used wrongly, your business may still be held accountable for damages. In such situations, it becomes the responsibility of your business to resolve the issue. Product liability insurance provides coverage for incidents where your business becomes the subject of a lawsuit related to product-related harm.
Facing a product liability lawsuit can be financially draining. The insurance pays off lawsuits, preventing significant financial losses. Additionally, this insurance provides coverage for medical expenses, compensatory damages, and business damages.
Who Needs Product Liability Insurance?
If your commercial duties involve selling products, securing product liability insurance is suitable for you, given the nature of potential lawsuits. However, various types of businesses purchase product liability insurance. They include:
- Stores.
- Distributors.
- Manufacturers.
- Online sellers on platforms like Amazon, eBay, and Etsy.
- Pet supply shops.
- Print shops.
- Restaurants.
- Wholesalers.
However, if a client decides to sue over damages caused by a complete work, product liability insurance helps provide financial coverage for such an incident.
How Much Product Liability Insurance Do I Need?
The extent of coverage you should purchase depends on the quantity of products you offer, the scale of your sales, and the parties engaged in the production process.
Generally, the higher the production output, the greater the chance of a defect in one of your products.
Typically, this concern may arise as your small business expands. It is essential to secure product liability insurance, regardless of your level of involvement in the manufacturing, sale, or distribution stages.
How Much Does Product Liability Insurance Cost?
The standard annual expense for this policy for small businesses is around $1,192.
However, the industry has a significant ability to determine product liability insurance premiums, which differ in average premiums across sectors.
Additional factors influencing the cost of product liability insurance include the following:
- Business location.
- Claims history.
- And policy limits.
In addition, to determine the cost of your business, it’s crucial to obtain a general liability insurance quote. Also, specialists are available to assist you in acquiring the coverage that suits your business.
What Does Product Liability Insurance Cover?
If you possess a general policy, it can provide coverage for product liability claims associated with:
- Design defects that existed before there was a mistake in the manufactured product.
- Manufacturing defects that happened during the production of the product.
- Strict liability, where a customer is harmed by a manufacturer’s product, even if the business owner is not deemed negligent.
- Improper warning, which may occur if a business owner fails to provide sufficient warnings on the proper use of a product,.
However, it’s important to note that this insurance type differs from product recall insurance. And to cover product recalls, you would need to purchase an endorsement for your business insurance policy.
What It Does Not Cover?
This insurance type is intended to pay off lawsuits arising from physical incidents caused by a product. However, it’s not established to cover issues related to software, apps, IT, and technical products.
Therefore, coding and software errors that result in financial loss to your customers are not covered by this policy. Moreover, you would require errors and omissions insurance for such technology-related problems.
Furthermore, product liability insurance does not extend to cover:
- Product recall costs.
- Workers injuries.
- Accidents engaging customers, such as slip-and-fall injuries.
Factors That Affect Product Liability Insurance
When purchasing product liability insurance, several factors can affect your coverage. They include:
Appropriate Coverage Limit
Selecting the right coverage limit is crucial. This limit determines the extent to which the insurance company will cover expenses in the event of a covered claim.
However, ensuring an adequate coverage limit is vital to determining the potential out-of-pocket expenses for the small business owner.
Coverage Territory
This is covered by the insurance policy, known as the coverage territory. The scope of this territory affects whether a claim will be covered.
Furthermore, if products can be utilized globally, opting for worldwide coverage is advisable to ensure comprehensive protection.
Geographical Considerations
The location of manufacturing or sales can influence the likelihood of facing lawsuits. If operating in a region known for its litigious environment, there may be an increased risk of legal challenges for the company.
Contractual Obligations
Businesses should be mindful of any contractual requirements related to insurance coverage. Certain vendor contracts may specify coverage limits, ensuring that the small business has adequate protection to cover incidents for which they may be held responsible.
In conclusion, comprehending these factors is significant in obtaining suitable product liability insurance. However, it is advisable to consult an expert or agent who can offer guidance on determining coverage limits and territories.
