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What is Product Liability Insurance?
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What Does Product Liability Insurance Cover?
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What Doesn’t Product Liability Insurance Cover?
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How Does Product Liability Insurance Work?
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Who Needs Product Liability Insurance?
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Why is Product Liability Insurance Important for Small Businesses?
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How Much Does Product Liability Insurance Cost?
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Product Liability VS. General Liability
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FAQs
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Explore Your Coverage Options Today!
What is Product Liability Insurance?
Product liability insurance shields businesses against claims that arise when products they manufacture, distribute, and sell cause personal injury or property damage to a third-party. This type of coverage is crucial for reducing the monetary risks associated with defective, dangerous or harmful products. Whether the problem stems from a product’s faulty design, a production error, improper labeling, or lack of warnings and/or instructions, product liability insurance is there to help cover the associated costs.
Product liability insurance exists both as a part of general liability coverage, as well as its own policy. Most commonly covering costs associated with legal defenses and settlements, the coverage enables business owners to meet industry standards while also providing peace of mind when it comes to daily operations.
What Does Product Liability Insurance Cover?
Product liability insurance covers businesses against financial ramifications when a product that they developed, distributed or sold causes harm or damage to another party. Specific areas of coverage include:
- Bodily Injury (including burns, allergic reactions, bone fractures, choking, and lacerations, internal damage, dismemberment, and much more).
- Illness/Infection (caused by bacteria, parasites, foodborne germs or viruses).
- Death
- Property Damage (such as structural damage, damage to personal items, vehicle damage, or chemical contamination).
- Legal Defense (including court costs, attorney fees, judgments and settlements— whether or not you’re found liable).
- Global Coverage (some policies even cover businesses who sell products internationally, if a mishap occurs).
- White-Labeled Products (if you buy from a manufacturer or wholesaler, and relabel your products, you’ll still be covered).
While no one expects to be involved in a lawsuit, the simple fact is that they happen. Your business is your livelihood, so don’t leave anything up to chance. By safeguarding your company against legal fees, medical bills, property repairs and more, you’ll be able to focus on what’s most important—running your business.
What Doesn’t Product Liability Insurance Cover?
While product liability insurance is extremely valuable to small businesses, and businesses of all sizes for that matter, it comes with some limitations. Here are some of the most common exclusions:
- Product Recalls: Policies don’t cover the costs associated with removing faulty products from the market such as product disposal, consumer notification or shipping expenses.
- Intentional Negligence: If there is a known defect in the product, or an intentional failure to alert the public about product safety concerns, costs will not be covered.
- Injured Employees: Product liability insurance does not apply if a product injures one of your own employees. Instead, a workers’ compensation policy would cover this situation.
- Damage to Company Property: Product liability insurance only covers damage caused to a third-party’s property. If your own property is damaged, you’ll need property insurance to recoup losses associated with damaged equipment, buildings or inventory.
- Professional Services: If a problem arises due to a professional service that you offer as opposed to a product, your product liability coverage will not suffice. Instead, you’ll need professional liability coverage, also known as errors and omissions (E&O) insurance.
- Visitor or Vendor Injuries at Your Business: If someone is visiting your business location and sustains an injury, you’ll need general liability insurance to be sufficiently covered.
It’s crucial to gain a full understanding of the exclusions and limitations of your particular policy. If you’re unsure about the gaps in your coverage, be sure to talk with your insurance advisor about additional policies, to ensure your business is protected from all angles.
How Does Product Liability Insurance Work?
While we all hope our businesses are never involved in a product-related incident, if one does happen to occur, it’s important to understand the process. Here’s a brief overview of a typical claims process:
- Filing a Claim: After an incident takes place, you’ll want to immediately contact your insurance provider and file the claim.
- Investigation Period: After the claim is filed, the insurance company will take time to investigate the claim. During this period they will review any relevant documentation, and gather additional evidence to uncover the extent and cause of the damage or injury.
- Payouts/Settlements: If the insurer determines that the claim is valid, they will either reach an agreement with the affected third-party, or if required, pursue legal action. Any payments used for settlement will compensate for medical expenses, legal fees and other associated costs.
Who Needs Product Liability Insurance?
If your company makes, sells, distributes, or imports products, product liability insurance is essential to operation. If a flaw in a product you offer results in physical harm or property damage, you run the risk of being held liable, even if your business didn’t manufacture it.
- Manufacturers: Legal risks arise from problems in product design, factory-related mishaps, or not enough testing before launching a product.
- Distributors and Wholesalers: Companies involved in handling bulk goods can still face liability risks, if a product causes harm down the line.
- Retailers: As mentioned, retailers are commonly sued over faulty items even when other businesses manufactured the goods.
- E-Commerce Businesses: Online retailers, as well as digital stores that sell other vendor’s products can incur blame for defective or mislabeled products.
Real-World Examples of Product Liability Risks
- Toy Distributor: A company that distributes children’s toys unknowingly sends out a shipment of toys that contain high levels of lead paint, which is known to be toxic and cause potential health risks. Even though the company didn’t produce the toys, they are still held liable.
- Candle Shop: A locally owned and operated business that makes candles, accidentally sold a batch with wick defects. This particular defect is causing candles to burn unevenly and resulted in a customer’s furniture catching on fire. Now they are being brought to court over the damages.
Why is Product Liability Insurance Important for Small Businesses?
Even with the best quality-control measures in place, product defects still occur through design errors, manufacturing problems, or incomplete labelings. When a customer suffers an injury or their property is damaged due to a faulty product, your business risks paying high costs, like steep medical expenses, legal fees or settlements.
Product liability insurance is especially important for small businesses as they tend to lack the necessary capital to pay for expensive settlements, or court cases out of pocket. With the proper product liability policy in place, businesses can remain protected without jeopardizing their financial stability. It’s important to keep in mind that many product-related claims only require proof of a defective product. This means that even if your business didn’t directly cause the issue with the product, you can still be held liable.
Additionally, while product liability insurance isn’t generally required by law, certain manufacturers, distributors and even e-commerce platforms require businesses working with them to carry this policy. In short, without product liability insurance, you could be stunting your company’s growth, since the lack of a policy may limit your ability to form partnerships and meet contractual obligations.
How Much Does Product Liability Insurance Cost?
Product liability insurance costs an average business anywhere between $500 to $1600 per year. For small businesses, the average monthly cost is about $99. A main factor in determining the cost of your policy depends on the type of business you operate and the risk-level of that business. For instance, home-based businesses tend to see lower premiums while manufacturers, dealing with production on a daily basis may pay more.
Here is a full list of factors contributing to the cost of a product liability insurance policy:
- Type of Product: Products that present higher risks to consumers like medical equipment or machinery, generally lead to higher insurance premiums.
- Volume of Products Sold: The more products you sell, the higher chance there is of a liability claim occurring. Therefore, more products sold tends to equal higher premiums.
- Claims Record: Companies which have never faced a product-related claim will generally be rewarded with lower premiums, as opposed to companies who’ve faced prior claims.
- Size of Operation: Small businesses like e-commerce shops or local retailers need less coverage than distributors or manufacturers with large facilities.
- Coverage Amount: The selected limits of your policy affect how much you’ll pay on a monthly and annual basis.
- Location: The state and local laws of your location may affect the overall cost of your insurance premiums.
Product Liability Insurance VS. General Liability Insurance
Product liability insurance and general liability insurance are both vital in protecting businesses from legal claims, but they have different uses and limitations.
What’s the Difference?
As mentioned, product liability focuses specifically on claims relating to personal injury or property damage arising from products that businesses sell, manufacture or distribute.
General liability on the other hand, covers a wider range of claims such as third-party injuries or property damage caused on a third-party’s property, as well as advertising and reputation damage as a result of general business operations.
Does General Liability Provide Product Liability Coverage?
The short answer is—sometimes. General liability insurance policies do oftentimes provide some level of product liability coverage, but other times it will need to be purchased as a separate policy. If you’re unsure about what your policy includes, just ask the insurance agent that you’re working with. This ensures that there are no glaring holes in your protection plan.
FAQs
If I don’t manufacture the products I sell, do I still need product liability insurance?
Yes! If someone gets hurt or their property is damaged due to a product you sell, you can still be held liable, even if you don’t manufacture anything. While the manufacturer created the product, since you are part of the supply chain, you may face legal claims and be held responsible, if the court determines that you didn’t ensure the product was safe before selling it.
How much product liability coverage does my business need?
The amount of coverage that your business will need depends on a variety of factors such as the risk-level of your products, the volume of sales you make on a yearly basis and the industry you’re a part of. While we encourage everyone to consult with our insurance advisors for a policy tailored to your needs, most small businesses obtain a $1 million per-occurrence limit and a $2 million aggregate limit to start.
What if I discover a defect in my product before any claim is made?
If you find a defect in one of your products before a claim is ever made, it’s important to act as quickly as possible. This may include issuing product recalls, alerting your base of customers, and contacting your insurer. While product liability insurance doesn’t cover product recalls, your provider should be able to offer you supplemental coverage options, or provide you with the next steps to resolve the issue.
Can I combine product liability insurance with other coverages?
Yes! Many insurance providers offer product liability with your general liability insurance policy. With that being said, depending on your business, the risk involved, and the insurer that you’re dealing with, you may need to purchase a standalone product liability policy.
Get Product Liability Coverage with EZ.Insure
Choosing the best product liability insurance policy for your business’s needs doesn’t have to be difficult. To make sure no box is left unchecked, visit EZ.Insure!
EZ.Insure specializes in helping small businesses like yours protect themselves from the unexpected risks that life has to offer. With the help of our side-by-side plan comparison tool, instant access to quotes, and live expert assistance, you can find the perfect product liability policy in no time.
Don’t go uninsured any longer! Enter your ZIP code below, or give us a call at (855)-694-0047 to get started!