Product liability insurance protects your business from any financial harm you may face from claims that your product caused bodily injury or property damage. This insurance applies to any product you manufacture, distribute, or sell. Product liability costs vary depending on the business, but premiums can range from $250 to $2,000 annually.
You can purchase product liability insurance as a stand-alone policy, but many providers often include it with general liability. As a digital marketplace, Simply Business is a great way to find and compare multiple options for general liability with product liability included. In 10 minutes or less, you can compare multiple quotes and purchase a policy online without speaking to anyone.
Product Liability Insurance Costs
Product liability costs vary largely based on a company’s size and industry. The following quotes are for general liability policies that include product liability in their coverage.
Type of Business | Level of Coverage | Average Estimated Monthly Premium |
|---|---|---|
Small Boutique | $2 million aggregate general liability with product liability | $25-$160 |
Food Vendor/Restaurant | $2 million aggregate general liability with product liability | $60-$150 |
Handyman | $2 million aggregate general liability with product liability | $20-$160 |
Factors Impacting Product Liability Insurance Costs
When determining the cost of product liability insurance, insurance companies will take into account several data points. The type of product is an immediate consideration. That includes how you market it, any safety features put into place for it, and the size of your distribution. Other factors that determine product liability insurance costs include industry and location.
- Industry: Not only are some products riskier than others, but certain industries face high standards and more lawsuits than others, so they often pay higher product liability premiums. For example, items like fireworks and firearms will have a higher risk factor than fuzzy slippers and yoga mats, which will be reflected in the premium.
- Location: Carriers price insurance based on state insurance regulations and typical loss exposure. If your state has what is known as “liberal” venues, meaning the court system is not friendly to insurance companies, this may play out in your premium.
- Revenue: Annual revenue defines a company’s overall liability lawsuit exposure and impacts the amounts awarded by courts.
- Claim history: If your business has had a claim in the last three to five years, your rates will likely be higher, and you may even find insurers that decline to offer coverage.
- Coverage limits: Policies start with limits as low as $100,000 but can exceed tens of millions of dollars for protection; higher coverage means more exposure for the insurer, so premiums are higher.
The Cost of Not Getting Product Liability Insurance
Obviously, it isn’t fun to pay for insurance, but it serves a purpose. In the product industry, product liability claims and lawsuits are especially high. The most recent data from the Insurance Information Institute shows that the median product liability award for claims that went to trial is $3.9 million.
What Product Liability Insurance Covers
Business owners are liable for injury, illness, and property damage caused by the products or services they bring to consumers. In most states, any business in the supply chain can be held responsible for the harm its goods or services cause.
Product liability handles the costs of a claim within the policy limits. Some more common costs include the business’s legal fees, such as lawyer bills, court awards, and even the injured party’s medical bills if the business is found liable. So retailers, designers, wholesalers, manufacturers, and distributors can all be sued for defects, flaws, and more.
- Design defects: When the initial design causes an entire product line to be inherently dangerous, like a top-heavy car that consistently flips over on turns
- Manufacturing flaws: When a flaw in production creates a defect in a product that then causes injury or damage; an example might be a swing set with a loose or weakened chain
- Defective instructions or warnings: When inadequate or unclear instructions cause an injury, such as a cleaning solution that emits chemical fumes and does not give directions to use in a ventilated area
- Food poisoning: In the food industry, when someone gets sick from your food (product), this would fall under the product liability portion of the general liability policy
Product liability insurance is pretty expansive in where coverage applies. For example, if a carpenter finishes hanging kitchen cabinets that later fall and cause damage, product liability insurance typically pays for the repairs.
Product Liability Coverage Details
While product liability is usually included with general liability insurance, you can purchase it as a standalone policy. Standalone policies can come with higher limits, but they also have special terms and conditions a business owner needs to understand.
Product liability can be written on a claims-made or an occurrence basis. The main difference between the two is that a claims-made policy covers claims that happen and are filed during the policy term. In contrast, an occurrence policy only requires the event to happen during the policy term.
- Claims-made policies require both the triggering event and the claim filing to take place while the policy is in force. However, most claims-made policies include prior acts coverage for triggering events that occur before the policy starts. Without this coverage, events that cause damage before you buy your policy would be denied, even if you only learn about them during the life of the policy.
- Occurrence policies pay for any covered claim—as long as the triggering event occurs during the life of the policy. If you no longer have an active policy with the carrier but a loss that took place while the policy was active is brought to your attention, you can still file a claim. So occurrence policies tend to be more expensive than claims-made policies because the insurer has to pay claims even after the policy has ended.
Recalls are usually excluded from product liability coverage and require an endorsement for product recall. A product recall policy generally covers the business’ financial loss in a recall, such as:
- Reimbursement payments
- Shipping costs
- Product testing
- Customer notification
- Employee overtime
A company working in an industry where product recalls could affect millions of people―such as safety products, electronics, or food—should consider getting product recall coverage in addition to product liability insurance.
If your small business doesn’t manufacture or sell products susceptible to recalls, you probably don’t need this insurance. As always, it’s a good idea to double-check your specific business and insurance needs with your agent.
Some providers offer vendor coverage as an insurance endorsement to the manufacturer’s or distributor’s policy because anyone involved in the manufacturing and distribution process can be held liable for product claims. This endorsement extends coverage down the supply chain to retail sellers.
A retailer who wants to take advantage of this rider should request a certificate of insurance (COI) as proof that the other business owner has product liability insurance—and note that not all carriers offer a vendor coverage rider. It is important to remember that because this endorsement creates additional insureds, claims by any of them are included in the policy’s aggregate limit.
Like any insurance policy, product liability has several common exclusions. Five common exclusions specific to product liability insurance include those for quality control and efficacy.
- Quality control exclusion: Product liability insurance carriers require that manufacturers and distributors maintain quality control standards to ensure products are safe for consumers.
- Reporting exclusion: Failure to report new manufacturing methods, products, materials, or ingredients can mean your policy doesn’t cover your product.
- Efficacy exclusion: Your insurer may deny a claim if your product fails to perform its main function.
- Material exclusions: Many carriers do not cover certain materials or ingredients; selling or manufacturing a product that contains a forbidden material or ingredient means your policy doesn’t cover it.
- Product recalls: As discussed above, most product liability policies don’t cover costs associated with the withdrawal, inspection, repair, replacement, or loss of use of an insured’s product if recalled.
To avoid the headache of a denied claim, make sure you understand what is covered and what is not covered by your policy.
Frequently Asked Questions (FAQs)
While it is not required by law, there are situations where conducting business will require carrying it. For example, many companies that work in distribution require the manufacturer to carry product liability insurance. If you are involved in a supply chain, the seller may add you as an additional insured to a policy.
Alternatively, if you are a vendor selling goods at an event or craft show, product liability insurance may be required coverage by a venue.
No, it is not. Product liability insurance covers claims that your product caused harm or injury—and the coverage is limited to that type of specific claim. Meanwhile, recall insurance is a separate coverage that will help with the costs of recalling a product.
The cost varies greatly depending on your business’ risk. For example, a policy for a small boutique can cost anywhere from $300 to $2,000 annually. Meanwhile, a food vendor liability policy can run from $700 to $1,800 annually.
Product liability insurance is often included in a general liability insurance policy for certain industries needing the coverage. Meanwhile, some providers sell it as a standalone policy, so if your general liability doesn’t carry product liability, you should consider purchasing it.
The best thing to do is review your policy with your provider or agent to see if your current general liability carries product liability. If it does, determine if the limits are sufficient for your business.
Any business engaged in manufacturing, distributing, or selling a product should consider purchasing product liability insurance. Since your business plays a part in passing the product along to the customer, your business could be held liable for any problems arising from the product.
Bottom Line
Product liability insurance is an essential policy for businesses manufacturing, distributing, or selling products. Product insurance protects against claims and lawsuits where judgments can be millions. You should get coverage to protect your business against the expense of defending claims if a product malfunctions or has a design flaw.
In just minutes, Simply Business can provide quotes from multiple top-rated providers. Compare quotes and find the right policy for your business today.
