- Last Updated:
- 7/9/2024
- Brianna Hale
Product liability insurance is coverage for third-party injuries or damages caused by a product you manufacture, distribute, or sell.
Products + People = An accident waiting to happen ❤️🩹
It doesn’t matter what kind of product you’re working with, something seems to go wrong eventually.
- 43% of small businesses are threatened with a lawsuit every year
- There’s an average of 6.5 product recalls a day
- 12.7 million people are treated in emergency rooms yearly for consumer product injuries
Whether it be an injury, illness, or property damage, you could be legal fees, potential settlements, and a hit to your reputation — all out of your own pocket, even if you’re not at fault.
The idea of an expense like this can be daunting, however…
Products + Product Liability Insurance = Your business, protected 🛡️
With product liability insurance, these costs are covered, allowing you to focus on running your business without the fear of financial ruin!
Understanding What Product Liability Is
Product liability refers to a manufacturer’s or seller’s responsibility for any injuries or damages caused by a defective product. This basically ensures that if a product is faulty and causes harm, the injured party can seek compensation.
Product liability insurance is designed to protect businesses from financial losses due to claims related to the products they sell. This is crucial for anyone handling products since even minor issues can lead to lawsuits that threaten your business.
Who Needs Product Liability Insurance, and Why?
Product insurance is essential for any business involved in the supply chain, from supplying materials to selling physical goods.
Whether you manufacture, distribute, or retail products, product insurance covers you if a product causes injury or damage to a customer. Plus, many suppliers and retailers require it before they do business with you, making it not just a safety net but a vital part of your business strategy.
Manufacturers
If you’re manufacturing products, you’re at the forefront of production and directly responsible for making your products safe for consumers and everyday use. Any defect in the design, production process, or materials can lead to liability claims.
Example: A kitchenware manufacturer needs product liability insurance to cover potential claims if a consumer is injured due to a design flaw in a cooking pan.
Wholesales & Distributors
Even if you’re not making the products yourself, you can still be held liable for defects. As a middleman, you need to be sure the products you distribute are safe and meet all regulatory standards.
Example: A distributor of electronic goods needs product liability insurance to protect against claims if a batch of faulty products causes fires in customers’ homes.
Retailers
Retailers are often the first point of contact for customers, so you’re often seen as the business responsible for putting a bad product out for sale and into consumers’ hands. You can be sued if a product causes harm or damage, whether you operate a brick-and-mortar store or an online shop.
Example: A local boutique needs product liability insurance to cover accidents from manufacturing defects or mislabelling of goods that could cause injuries, illnesses, or damages.
Importers
Facilitating the shipping of goods or bringing products into the country means you can be held liable if those items do not meet local safety standards or cause accidents. This is especially important given the complexities of global supply chains.
Example: A business importing cosmetics from overseas needs product liability insurance to protect against claims if the products cause allergic reactions due to undisclosed ingredients.
Online Sellers
Selling products online comes with a unique set of risks, including a broader customer base and varying regional regulations. E-commerce sellers must ensure products are safe and comply with all applicable laws.
Example: An online retailer selling clothes needs product liability insurance to cover potential claims if a customer is injured from hardware on the clothes or dye in the clothes discolors their other linens.
Types of Claims Covered
Because your product can reach a wide variety of people, your liability insurance needs to cover a wide variety of claims.
We see most product liability claims are caused by a defect, like:
- Design defects – These occur when a product’s design is inherently unsafe. Even if manufactured perfectly, the product poses a danger.
- Manufacturing defects – These happen during the production process. While the product design might be safe, something went wrong while making it.
- Marketing defects – Also known as “failure to warn” defects, these involve inadequate instructions, the product’s proper use, or side effects.
Other common claims product insurance covers include:
- Allergic reactions
- Failure to provide warnings
- Foodborne illnesses
- Injuries or death
- Lawsuits and litigation
- Mislabeling
- Property damage
- Slander and libel
How Product Liability Fits With Other Types of Business Insurance
Like a puzzle piece, product liability is only one part of the overall picture for perfect protection.
You’ll typically see product and general liability insurance together on one policy, but these may not cover every aspect of your business, exposing you to risks. You’ll often find a variety of other coverage options available to tailor your protection to your needs!
Protects against claims of bodily injury, property damage, and personal injury (like libel or slander) that occur on your business premises or as a result of your business operations. This is included in most Insurance Canopy product liability policies.
How it fits: General liability covers a broad range of risks, but it does not cover claims specifically related to products intended to be sold for profit. Product liability provides protection for product-related issues.
Also known as Errors and Omissions (E&O) Insurance, it protects against claims of negligence, errors, or omissions in the professional services you provide.
How it fits: For businesses that provide products and services (like a salon owner, food truck, or cleaning business) professional liability covers the service aspect, while product liability covers the physical products.
Protects your goods and equipment against theft and damage while in transit over land, handling, or in storage.
How it fits: If a shipment of products is damaged in transit, inland marine covers the loss, allowing you to replace the goods. If those products later cause injury or damage, product liability covers the resulting claims.
Protects against financial losses resulting from the cost of pulling a recalled product from the market.
How it fits: Product liability can cover the accidents caused by a product, but not the expense of recalling a faulty or defective product from store shelves. That’s where product recall coverage comes into play.
Protects against financial losses resulting from cyberattacks, data breaches, and other cyber threats.
How it fits: Cyber liability safeguards your digital assets and customer data, whereas product liability protects against physical product-related claims. Together, they protect your business in both digital and physical realms.
Provides medical benefits and wage replacement for employees who suffer from work-related injuries or deaths.
How it fits: Workers’ comp insurance offers coverage for employee injuries caused by your business, while product liability focuses on customer injuries caused by your products. Both are essential for protecting different aspects of your business operations.
It’s a good idea to bundle your product insurance with other coverages and liabilities insurance for a more comprehensive plan, like professional liability and inland marine insurance. This keeps you covered for more claims!
What Product Liability Insurance Covers & How Much It Costs
Product liability insurance covers your business from having to pay the full cost of legal fees if someone claims your product caused bodily injury or property damage.
This can include:
- Defense fees – The cost of legal fees to defend your business in court
- Lost wages – The income someone may have lost because of a product injury
- Medical treatment – The bills from a customer seeking medical care for an injury
- Repair and replacement costs – The cost to fix property damaged by your products
- Funeral expenses – The cost of a funeral for an accidental death
- Legal settlements – The amount you are legally required to pay to an injured party
Having the right product protection allows you to focus on growing your business with the peace of mind of knowing you’re covered against unexpected incidents that could otherwise lead to major financial and reputational setbacks.
Exclusions: What It Doesn’t Cover
Every insurance coverage has its limitations. Product liability won’t cover more than the injuries or damages caused by your insured products.
It also won’t cover:
- Intentional acts of harm
- Fraudulent activities
- Employee injuries or damages
- Product recall costs
- Warranties or guarantees
- Theft or damages to your property (rented or owned)
- Injuries you sustain from your product
- Pollution or environmental harm
- Damages to the product itself
- Professional negligence
Specific products and ingredients commonly excluded from product liability insurance include:
- Infant products and supplies
- Children’s toys and furniture
- Construction gear and equipment
- Industrial and commercial products
- Weapons and ammunition
- Aircraft and vehicles
- Products requiring a prescription
- Ingredients like talc or illegal substances
- Products that permanently alter or stay in the body
- Tobacco products and narcotics
- Military or police gear and equipment
How Much Product Liability Insurance Costs
On average, product liability insurance costs range from $67 to $116 per month, which is about $800 to $1,400 per year.
The actual premium you pay will depend on the level of risk associated with your business. We tailor your rates specifically to your business and product based on your:
- Annual sales
- Business industry and operations
- Claims history
- Coverage and limits
- Product type and risks
Why Choose Insurance Canopy for Product Liability Insurance?
No one gets product liability like we do!
⭐ We’ve been in the insurance industry since 2010, helping home-based entrepreneurs and large-scale manufacturers get customized coverage for their businesses.
⭐ Our policies have nearly 5-star reviews and are trusted by thousands of business owners year after year.
⭐ We’ve helped our customers get their products onto the shelves and sites of major retail stores like Target, Whole Foods, Rite Aid, Walmart, Petco, and Ulta Beauty.
⭐ Our business combines the ease of online policy management with one-on-one help from in-house agents. Each product insurance plan is handwritten for you! And if we can’t write your policy, we’ll find someone else who can.
FAQs: Common Questions About Product Liability Insurance
How Can I Avoid Common Product Liability Claims?
You can avoid common product liability claims by:
- Ensuring strict quality control during manufacturing to lower the risk of defects
- Providing clear instructions and warnings to outline proper use and potential risks
- Regularly reviewing and complying with all relevant safety regulations and standards
- Thoroughly vetting suppliers and testing products before bringing them to market to catch any issues early
How Are Product Liability Insurance Premiums Calculated?
Product liability insurance premiums are calculated based on several factors, including the type of products you sell, the volume of sales, and your business’s claims history.
Other considerations include the size of your business, the markets you operate in, and the safety measures you have in place.
What are Examples of Product Liability Claims?
Examples of product liability claims include a customer being injured by a defective power tool due to a design flaw, leading to a lawsuit for medical expenses and damages.
Another example is a food product contaminated during manufacturing, causing illness and resulting in claims for health-related costs.
A third example is a child choking on a small part of a product that did not have adequate safety warnings, prompting a claim for failing to provide proper usage instructions.
JoAnne Hammer | Program Manager
JoAnne Hammer is the Program Manager for Insurance Canopy. She has held the prestigious Certified Insurance Counselor (CIC) designation since July 2004.
JoAnne understands that starting and operating a business takes a tremendous amount of time, dedication, and financial resources. She believes that insurance is the single best way to protect your investment, business, and personal assets.
JoAnne Hammer is the Program Manager for Insurance Canopy. She has held the prestigious Certified Insurance Counselor (CIC) designation since July 2004.
JoAnne understands that starting and operating a business takes a tremendous amount of time, dedication, and financial resources. She believes that insurance is the single best way to protect your investment, business, and personal assets.
