NYC Insurance Blog

Product Liability Insurance: A Complete Guide for Small Business Owners

Starting a small business might seem difficult but running it is far more challenging. In a brink of an eye, anything can happen to jeopardize your reputation and business. Accidents happen in businesses, and without the right coverage, you could lose money or your business. Product liability insurance is important even if your business is small or relatively new. Although product liability coverage is included in a general liability insurance policy, some businesses should consider increasing their limit or purchasing additional coverage.

What is Product Liability Coverage?

Product liability insurance protects your business against legal claims alleging that a product you made, sold, or distributed caused property damage or bodily harm/injury. The buyer or user can make a legal claim for the product. However, the alleged defect could be in the:

• Product’s design
• Product’s manufacturing 
• Product marketing, i.e., providing improper instructions, labeling errors, or missing warnings

How Does Product Liability Insurance Work?

Although it is not required by law, it is prudent for business owners involved in manufacturing, distributing, or selling products to buy this coverage. In essence, all products have the potential to cause bodily harm or property damage, and the only to protect yourself is by investing in this coverage. Business owners can be held liable for property damage or injury caused by a product even if the customer uses them incorrectly. This coverage covers legal fees, property damage costs, medical expenses, and settlements against your business or product. Give our Agency a call today to help you get your products covered!

Without product liability coverage, you will have to pay all these expenses out of pocket! This coverage also helps cover the following:

• Design defects – if there is a problem with the product’s design
• Manufacturing defects – if the manufacturing process was faulted
• Marketing – if a mistake was made when marketing the product, for example, using improper labels
• Strict liability – this applies when a product causes injury or property damage to the consumer, and you are not at fault

Remember that product liability insurance does not include:

• Employee injuries – they fall under workers’ compensation insurance
• Customer injuries – customer injuries at your workplace fall under general liability insurance
• Damage to your property – this policy does not cover damages to your property to any extent. You need to purchase commercial property insurance for coverage
• Commercial auto accidents – if one of your employees is involved in an accident and injures other people or damages their property, product liability coverage will not cover the claims. You need commercial auto insurance for that
• Product recalls – if a claim results in a product recall, this coverage will not cover the losses. You need to purchase recall insurance just in case that happens 
• Tech products – if you deal with tech products, you primarily need professional liability coverage or cyber liability insurance 

Not all businesses should invest in product liability insurance. However, if you are unsure whether you should purchase this coverage, consult an insurance agent to avoid taking unnecessary risks. Businesses in the following industries should consider purchasing this coverage:

• Pet supply stores
• Print shops
• Restaurants
• Wholesalers, distributors, and retailers
• Online sellers
• Equipment suppliers
• Web designers
• Manufacturers
• Beauty & Cosmetology

Product Liability Insurance Cost

Product insurance costs approximately $1,200 for small businesses with less than $1 million on average. However, the cost of purchasing this coverage varies depending on the risk associated with your business or product. Here are factors that affect coverage costs:

• Product type – expect to pay higher premiums if your product has a higher risk of causing harm to the consumer, for example, electronics, food, and beverages. 
• Claims history – if you have a claims history, it will increase your coverage cost because there is a high possibility of a possible claim in the future. 
• Coverage limits – more coverage translates to higher insurance premiums
• Sales – the higher the sales, the higher the risks, thus increasing rates
• Business size and location 
• Your position in the supply chain – normally, manufacturers pay higher premiums than distributors and retailers

When buying coverage, shop around and compare quotes to get the best deal. Alternatively, consider purchasing a business owner’s insurance policy. The policy combines commercial property, business interruption, and general liability coverages into a single policy that can be pocket friendly than buying individual policies. It is crucial to double-check with your insurance agent whether your business owner’s policy (BOP) includes product liability coverage, especially if you are in the manufacturing, distribution, construction, or food industries. Sometimes, general liability insurance might provide sufficient coverage for bodily injury or property damage. However, talk to an experienced insurance agent to determine what’s covered and if you need to purchase additional coverage. Call us Today, and Get a Quote!

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