Risks, liabilities, claims, and product liability insurance. You might have heard these terms before, but what exactly do they mean in terms of your business? 

From the moment a product is created, it carries risks. These risks could cause injuries and damages that lead to angry consumers, lawsuits, product recalls, lost business partnerships, a damaged reputation, and more. 

This probably sounds like a lot of expenses—and believe me, it can be. According to a recent study, a product liability claim can cost an average of $25,336 for a small business. So, how can you avoid an expense like this? The easiest and most reliable way is by getting product liability insurance

What is product liability insurance? 

Product liability insurance is designed to help you pay for claims related to bodily injury, illness, property damage, and death caused by using your product. Any business in the supply chain is at risk of being named in a claim, such as suppliers, manufacturers, importers, distributors, wholesalers, and retailers. 

What types of risks does my business have? 

Every business carries risks, but some will have more than others. For example, a small clothing boutique is going to hold less risk than a cleaning product manufacturer. This is because the injuries and damages that could come from clothing are less likely to occur or be fatal compared to those from a cleaning product. 

Ask yourself: how can a consumer be harmed from using my product? How could my product damage their property? Things like electrical components may spark and lead to fires. Anything topical for the skin could cause irritation or discolor fabrics. Even mislabeling or failure to add proper warnings could result in accidents.

If you don’t help create products (both parts of a product or whole products), then your business assumes the risk of assisting this product to go to market and into the hands of consumers. 

Let’s say a brand of granola bars is under scrutiny for causing an allergic reaction in some people. More than just the manufacturer could be at fault and named in a lawsuit. 

  • The supplier may be held responsible for giving potentially contaminated or poor ingredients to the manufacturer. 
  • The importer could be sued for bringing the product into local stores without ensuring the item was safe. 
  • The distributor might be liable for sending a faulty product to stores. 
  • Wholesalers and retailers can be held responsible for selling bad products to consumers. 

If you play any role in a product’s life cycle, then your business must understand the risks associated with that product should a claim occur. When someone sues, they often go for as many deep pockets as possible—so it’s vital to protect your business’s finances with the right kind of coverage. 

Is product liability insurance required? 

Many times product liability insurance is required through contracts or for business deals. To get your product in-store or online, a company may require you to be insured and name them as an additional party insured on your policy. 

If you’re trying to get your product manufactured, you might have to show proof of insurance. It can also be a required step before entering into a subscription box partnership or selling at trade shows and events. 

What if I sell my products online or dropship through e-commerce sites? Do I still need insurance? 

Yes! If you sell products through your own site, list them on Etsy, wholesale on eBay, or drop ship through Amazon, you should strongly consider product liability insurance. 

Some online marketplaces, like Amazon, even require you to carry insurance. Plus, a lot of e-commerce sites exclude product liability claims from their seller protection policies. Many even go as far as to say they are exempt from being named in a claim due to your business or product—and if they are named, you are accountable for dismissing them from lawsuits and paying for their legal fees. This is a process called indemnification and can be hidden in the pages of disclaimers and agreements you sign when making an account with them. 

Product liability insurance can help fill the gap left by many online marketplaces. It may even assist in some cases of indemnification. If you sell your products under your own branded site, having product liability insurance is sometimes the only protection you can receive. Many homeowners’ and renters’ insurance policies don’t cover claims related to paid business activities, products, and equipment. 

What type of coverage should I look for in my policy? 

Some insurance policies can do more than just cover product liability. After all, there are more parts to your business than just working with products. You might find the following type of policies included in your plan (or offered as an optional add-on): 

  • General Liability Insurance for third-party injury and damage claims 
  • Inland Marine Insurance (Business Personal Property) insures immoveable tools and equipment used in your operations 
  • Product Recall Coverage to help cover the cost of pulling a product from the market (excluding lost profit) 
  • Trade Show Coverage insures your business while selling products at events 
  • Cyber Liability Insurance in the case of a phishing scam or malware attack on business documents or funds stored electronically 
  • Employee Benefits Liability is coverage for errors or omissions when administering employee benefits 
  • Hired/Non-Owned Auto Coverage for rented employee vehicles used for business 
  • Per Occurrence Limits for accidents that occurred during a policy period, but a claim was filed once coverage ended 
  • Excess Liability raises your coverage limits in the event of a claim exceeding your current insurance limits 
  • Medical Expense Limit is a fund used to help pay for medical bills for injuries
  •  Personal & Advertising Injury may help if you mistakenly use a copyrighted photo in an ad or use a trademarked design 
  • Damage to Premises Rented to You applies to fire damage to a rented space caused by your business operations 

How much does it cost? 

No two businesses are the same; therefore no two product liability insurance policies are the same. An insurance carrier is going to look at a couple of different factors to help calculate your coverage, such as: 

  • Business operations
  • Product type 
  • Risks carried 
  • Business size
  • Annual revenue
  • Industry type 

Based on recent data, the average cost for a yearly premium is an estimated $1,147.

Where can I buy product liability insurance? 

With a quick internet search, you can find product liability insurance offered by a number of companies. When making your choice, be sure to go with one that has been in the industry long enough to streamline their process, offers A+ rated coverage from top carriers, and can cater to a variety of products—just like Insurance Canopy

For more than a decade, Insurance Canopy has been a pioneer in the product liability insurance space. They have helped thousands of businesses access niche coverage in industries like beauty and cosmetics, CBD and Hemp, e-commerce markets, and nutraceuticals. Their work has helped businesses like yours break into new markets and get their products onto store shelves and online listings. 

Insurance Canopy has created a simple online insurance application that can be completed in minutes and get you a free quote in as little as 24 hours. This means you can be insured quickly—saving you time, stress, and money, to get your product in the market quicker. The best part is you get to customize your coverage to fit your business’ needs. Submit an application today and see what Insurance Canopy can do for you!

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