Product liability insurance is key for protecting your business from legal expenses should you wind up in a lawsuit because of a product issue—regardless of where your business falls on the supply chain. However, there is a wide range of additional insurance coverage options that you should consider as part of your business insurance. The following coverages will help protect you against third-party claims, financial losses and damage to your property—all of which could seriously impact your business operations.
- Commercial General Liability Insurance: Also known as CGL, this coverage is designed to protect you and your business from a loss if you're found legally liable for bodily injuries or property damage to a third-party caused by the product you sell or service you provide. Commercial general liability insurance can also help protect you and your employees while conducting business away from your usual place of operation.
- Cyber Risk and Data Breach Coverage: Protect valuable assets, financial information and confidential client information from cyber attacks with cyber risk and data breach coverage.
- Professional Liability: Also known as errors and omission insurance, this coverage helps protect you in the event a client makes a claim that your professional services or advice caused them a financial loss. This coverage will help protect you in the event the accusation gets taken to court.
- Commercial Property Insurance: You rely on your business property as your headquarters or your brick-and-mortar place of operations. Protect it from property damage losses by including commercial property insurance in your business insurance policy.
- Equipment Breakdown Insurance: Typically, your equipment is covered in your property insurance policy for damage caused by external sources, such as fires, floods and other extreme weather events. But you might not be covered for electrical or mechanical damage caused internally. If equipment is a key aspect of your business, protect it with equipment breakdown insurance.
Commercial Auto Insurance: If you use a vehicle for business purposes, such as dropping off deliveries or driving to meet clients frequently, it's important your vehicle is adequately protected with commercial auto insurance.
What are the “Limits” on a Product Liability Insurance Policy?
The limits on product liability insurance will vary depending on whether you decide to get basic coverage or opt for advanced coverage. However, typically the limits on a product liability insurance policy ranges between $1,000,000 and $5,000,000. Usually, this policy's limit is part of a general liability insurance policy’s limit.
How Do I Know if I Have the Right Product Liability Insurance Policy?
While a qualified broker at Krywolt Insurance will be able to ascertain your business' unique coverage needs and help you choose the right policy for you, it's important that you opt for a product liability insurance policy that:
- Protects your business from bankruptcy
- Will protect you financially from the cost of replacing the defective, tampered product
- Includes shipping, advertising and promotional expenses
- Includes the cost of disposing of any defective products
- Incorporates the cost of business disruption
- Pays any fees to wholesalers, retailers and agents
- Helps your company repair its reputation after a lawsuit
What Factors Impact Product Liability Insurance?
The primary factor that determines your product liability insurance cost is the amount of potential danger associated with your goods. If you work in a high-risk industry, your costs will naturally be more. However, there are other factors that influence your insurance premiums, including:
- Policy limits
- Your insurance claims history
- Type of products
- Number of units sold
- Annual and projected revenue
- Size of distribution
- Industry and company size
- Factors related to shipping, storage, packaging, safety measures in place etc.
Is Product Liability Insurance Legally Mandatory for Retail and E-Commerce Stores?
No. In most industries, product liability insurance is not mandatory. That said, it's strongly recommended, especially if you sell, produce or distribute products that could easily result in claims against you—such as in the cosmetic and food industries. For instance, skin creams can lead to reactions and food items may cause food poisoning.
What is the Difference Between Product Liability Insurance and General Liability Insurance?
Product liability insurance is essentially more focused than general liability insurance, as it only extends to damages being caused by a product you sold or manufactured. Alternatively, general liability provides protection for a wide range of instances where a third-party's property is damaged or is physically harmed on your premises.
For instance, if your employee is mopping and a customer slips and falls, the subsequent insurance claim would be covered by general liability. But if a customer uses your product and has an allergic reaction, that would be covered by product liability.
Do All Companies Need Product Liability Insurance?
If you sell, distribute, import or manufacture any type of goods—including food, clothing or technology—then you should have this coverage. It will protect your company in the event of legal action stemming from defective or faulty products.
Does Product Liability Insurance Cover Problems with Software or an App?
This depends; coding mistakes and software errors may cause a business' operations to be affected—in which case you should have a professional liability/errors and omissions insurance policy; whereas product liability protects you against a customer who experienced physical harm because of your product. An example of this would be an exploding battery or faulty wiring leading to electrical shock.
How Much Product Liability Insurance Does Your Small Business Need?
How much coverage you decide to buy depends on:
- What product you sell or produce
- How many products you sell or produce
- The volume of sales
- The number of parties involved in production
Typically, the more output the greater likelihood one of the products you make or sell will be defective. As your small business grows, you may have to adjust your policy for your changing needs.
Why is Product Liability Insurance for Small Businesses Important?
If your business produces or sells products to customers, there is a chance your product could have a defect that causes injuries or damages a third-party's property. Without a proper product liability insurance policy, you'll be forced to pay out-of-pocket for:
- The customer's medical costs to treat their injury
- Legal fees and costs to defend your company
- Settlements or compensations made against your company
What is Not Covered by Product Liability Insurance?
The only coverage provided by a product liability policy is for property damages or bodily injuries to a third-party caused by a product you sell or manufacture. Anything else, such as slip-and-fall injuries, financial loss from professional advice, or damage to your business itself, are covered with different insurance policies including general liability, professional liability and commercial property coverage.
