Congratulations! You started a new small business venture. Now what?
As a small business entrepreneur, you’ve likely spent untold hours researching and making your product, determining the best avenue to sell or distribute your product and financial resources on building your business.
Now it’s time to protect your investment against costly claims. Small business product liability insurance is an especially important risk mitigation tool that you need as part of your business portfolio.
Even the best quality control and business attorneys can’t protect your business from being targeted in a lawsuit in the event your product causes injury or property damage…
Do I Need Small Business Product Liability Insurance?
Here are a few questions to help you determine if your business needs product liability insurance:
- Do you make your own product?
- Does your product have your business name, logo, or a reference to your business on it or the packaging, even if you don’t manufacture it?
- Do you sell Ingredients, parts, or supplies to others to be used in another product?
- Are your products imported?
- Do you manufacture a product for other businesses that they brand as their own?
In each of these circumstances, you are considered the manufacturer and have a responsibility for the safety of your product. So if you answered yes to any of these questions, product liability insurance is a must have for your business.
I have General Liability Insurance; doesn’t that protect me?
While a general liability policy may have some coverage for products, many exclude or limit this coverage, leaving you open to financially devastating losses and claims.
In addition, there are many coverage options of product liability insurance that you won’t find in basic general liability coverage.
The Nuts & Bolts Of Product Liability Insurance
Let’s face it—insurance isn’t the most exciting part of business ownership. It is often complicated to understand and be certain your small business is correctly insured. By understanding some basics about small business product insurance, you can have peace of mind when selling your product.
You will need to have some information about your business, your product, and your distribution model to obtain the product liability insurance best suited to you. These items include:
- Your prior years gross sales (by product if you have multiple products)
- An estimate of your projected gross sales for the upcoming year
- A detailed description of your product
- Copies of your packaging
- Brochures, warning labels, and instructions for use
- Ingredient lists or MSDS data
- Intended use of your product
- Any contracts you have with others who will be a part of either the manufacturing, distribution, or sales of your product (i.e., Walmart, Amazon, fulfillment warehouses)
- Your quality control procedures
How Much Does Product Liability Insurance Cost?
There are several factors that determine the cost of product liability insurance. Below we will take a deeper look at what some of those factors are and how they affect the cost.
- Is your product used for safety purposes such as a sports helmet, car seat, harnesses, or life jackets?
- Is your product intended for infants or children?
- Could your product be considered or used as a weapon?
- Is your product considered invasive medical equipment or intended to remain inside the body?
These examples are of high-risk products which if there is a failure or defect could result in sever bodily injury, permanent disability, or death.
Product liability insurance for items such as these can be quite expensive. Often $10,000 would be the minimum cost one could expect. On the other end of the spectrum, product liability insurance for low-risk innocuous products generally starts at around $2,000 but could be as low as a few hundred dollars.
However, claims, including defense costs, for either product can be hundreds of thousands of dollars, and into the millions for the most severe injuries and property damage.
What Does Product Liability Cover?
In the plainest of terms, product liability insurance protects your business from claims that you are legally liability for because of a product you design, sell, manufacture, or distribute.
The most common limits and additional coverages are:
$2,000,000 Aggregate, or the most the insurance will pay over the term of the policy.
$1,000,000 Each Occurrence, this is the maximum amount the insurance will pay for any one claim.
Product Recall — This coverage will assist your business with the cost of removing a defective product from the market.
Professional Liability — This coverage is important if you design products for others or if you offer any professional services along with your product.
Inventory, Supplies, and Equipment Coverage — Also commonly referred to as Inland Marine or Business Personal Property. This coverage can help you replace your inventory and other business items used to make your product and conduct your business against certain damages and loss.
The Most Common Causes of Small Business Product Liability Claims (& How To Prevent Them)
Unfortunately in today’s society, lawsuits are filed for almost any reason—even if the consumers own actions that may have led to their injury or property damage. There are some common things to be aware of that may lead to a product liability claim.
Improper or difficult to follow instructions — Make sure your product instructions are clear, concise, and simple to follow. Don’t skip steps that may seem obvious and be sure to provide maintenance instructions.
Inadequate labeling and warnings — When your product has ingredients or chemicals that may cause allergies or reactions, be sure those are listed and in an easy to find location. Mark safeguards, pinch points, or other inherent hazards adequately and include warnings of such. Are there any “reasonably foreseeable” ways your product could be used that may cause harm or damage?
Defects in Design or Malfunction — Having robust testing, quality assurance and controls is one of the easiest ways to prevent a claim for a defect or malfunction.
Contamination — Contamination of your product can be avoided by ensuring a clean and proper manufacturing area. Label all ingredient containers clearly and follow correct storage protocol. Keep cleaning products and other contaminants in their original packaging and store away from manufacturing and product storage areas.
What Are You Waiting For? Get Your Small Business Product Liability In A Few Simple Steps!
Finding and applying for the right product liability insurance can be done online and at your convenience. It is easier than you think—you can complete your application in minutes.
Apply for a free quote online today. A highly trained insurance agent will be in touch with you within one business day to finalize your quote and answer any questions you may have.
