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How Much Does Product Liability Insurance Cost? (2022 Rates)

If your business manufactures, distributes, or sells products, you could be sued if an item is misused or malfunctions and injures someone, or causes property damage. The same could be true if someone eats or drinks something you produce or sell, and it makes them ill.

Product-related lawsuits can be costly, even if your business is found to be legally not responsible for the incident. Legal expenses can be enough to put a company out of operation.

The best way to protect your business against these types of lawsuits is to get product liability insurance coverage.

This article will explain how much product liability coverage costs and the value an investment in it will provide to your business.

How much does product liability insurance cost?

Product liability insurance is usually packaged with general liability coverage, making it tricky to determine its cost. The price is typically based on different product risk categories and how much of the product in each category you sell. Having said that, product liability insurance usually costs small businesses around $400-$1,200 a year.

More than 58% small business pays less than $1,000 a year for product liability coverage and they usually have this coverage combined in the general liability insurance policy.

This is just the average cost. Your quotes and rates will be very different. Be sure to shop around with a few carriers or work with a top broker like CoverWallet, ez.insure, or commercialinsurance.net to get and compare several quotes before making your final decision.

How much is the average product liability insurance cost per month?

The average product liability insurance cost per month is $56 a month or $672 a year. Most small businesses usually pay $40 to $86 for product liability insurance coverage. This monthly cost is for product liability coverage included in a general liability insurance policy.

If you want to purchase a stand-alone product liability insurance policy, it may cost more, depending on the product you sell and the revenue of your company.

How to calculate product liability insurance cost?

The average cost of product liability insurance for items in a low-risk category is about $0.25 per each $100 in revenue earned for the product type. For example, if you sell $1,000,000 worth of low-risk goods each year, your product liability insurance costs would be $2,500 ($0.25 X $1,000,000/100). An example of a low-risk product category is selling or distributing clothes or bedding. Costs will go up for riskier product categories like health care supplements and motorcycles.

Your actual cost for product liability insurance could be higher, or lower depending on the type of product you design, manufacture, or sell and the annual revenue generated for your business.

What is the most important factor impacting product liability insurance cost?

Product liability insurance costs will vary depending on the risks associated with different types of products. Producing or selling things like fireworks or guns will have a significantly higher risk factor than clothes or bedding.

To determine product liability premium costs, insurance carriers consider your company’s risk of facing legal action over defective products, product recalls, design defects, misuse, and other product liability claims.

How do coverage limits affect product liability insurance costs?

As with other business insurance, the cost of product liability coverage depends on how much protection you buy. If you choose a policy with higher coverage limits, you can expect to pay a higher premium.

Product liability lawsuits can be very costly. Work with your insurance agent or company representative to select a limit that covers you adequately at a price you can afford.

What other factors impact product liability insurance prices?

Your cost is based on factors including:

  • Amount of coverage
  • Industry and risk factors
  • Business location or locations
  • Number of employees
  • Industry experience
  • Deductible.

Manufacturers face higher risks and may end up paying more for this type of insurance than wholesalers and retailers.

How can I save money on product liability insurance?

Here are a few ways for small business owners to pay less for product liability insurance:

Bundle product liability insurance in a business owners policy (BOP)

If you have a Business Owners Policy, the least expensive way to get product liability coverage is to add it on. If you don’t have a BOP, it could be a smart idea to look into it. It’s a good way to get complete insurance protection for your business at a relatively affordable price.

Pay your premium annually rather than monthly or quarterly.

Many insurers offer discounts for businesses that pay the total annual premium when they get or renew coverage instead of paying in installments. Paying monthly or quarterly will increase your total cost by 10-15%. If you can afford to pay annually, that would save your money on the policy.

Manage risks.

If you don’t make claims on your product liability insurance, your premiums will be lower than if you do. To keep costs down, take steps to reduce your need to make a claim, such as:

  • Thoroughly testing anything you sell
  • Practicing strict quality control on anything you manufacture 
  • Training your employees on the proper use, set-up, and installation of products and equipment 
  • Offering products made by reputable companies
  • Not selling any type of merchandise that’s likely to cause injury or property damage
  • Staying alert, always looking out for things that don’t seem right
  • Training employees on how to educate customers about proper product use.

Shop around and compare quotes

Last but not least, don’t buy the first quote that you receive. Be sure to shop around with a few carriers. Insurance companies view the risks of your business differently. They will give you different quotes. If you buy the first policy you are provided, you will certainly leave money on the table. A good way to shop around with spending much time and efforts is to work with a top broker like CoverWallet, ez.insure, or commercialinsurance.net. They can get several quotes from their partners for you to compare and select the cheapest one for you.

What is product liability insurance?

Product liability insurance helps pay legal expenses if someone claims that a product you sold, manufactured, or distributed caused an injury or property damage, and they sue you.

Does my small business need product liability insurance?

If you sell, manufacture, or distribute products, you should consider product liability coverage.

If a product harms someone or damages their property, product liability coverage will help pay your legal, judgment, and settlement costs. The insurance also will pay for expenses associated with frivolous and nuisance lawsuits, which can be considerable. 

Do I need product liability insurance if I’m careful?

Yes, it can benefit you in several ways.

  • You may not know that you’re selling a defective product. Anyone involved in a product’s supply chain can make a mistake and be sued if it causes harm or financial losses.
  • A purchaser might also sue if they believe you or an employee provided inadequate warnings or inaccurate instructions about a product you made or sold them. If they get injured misusing your product, they could try to hold your business responsible.
  • A customer could sue because they’re merely unhappy with the item you made or sold them. Even when a lawsuit is frivolous or unjustified, product liability insurance will pay your legal costs.

What does product liability insurance cover?

Product liability insurance provides coverage when a product you sell, manufacture, or distribute:

  • Damages someone’s property
  • Causes injuries 
  • Makes someone ill
  • Contributes to a death.

What does product liability insurance not cover?

Product liability insurance does not cover:

  • Product recall expenses
  • Injuries to employees
  • Damaged products
  • Non-product-related customer injuries or property damage.

What are examples of things protected by product liability coverage?

Here are some scenarios where the coverage would be valuable:

  • A coffee roaster sells a cup of hot coffee. The customer put the lid on the cup incorrectly. She takes a sip and spills hot coffee on herself, and suffers burns. The customer files a lawsuit that is eventually dismissed. Product liability insurance pays for legal defense costs even though the case is thrown out.
  • A phone store sells a charger to a customer, and it explodes, causing a small fire in the customer’s home. She sues the shop to recoup the cost of the desk damaged by the fire. Product liability insurance covers legal and settlement costs, including purchasing a replacement desk.
  • A gourmet store sells a jar of expired sauce to a customer. The customer and his dinner guests get sick after eating it. The customer and guests sue the gourmet store for costs associated with the resulting emergency room visits and missed workdays. The gourmet store owner’s product liability insurance covers the costs.

In all these cases, the future of the business would have been at risk without product liability insurance.

Best product liability insurance companies

We have done the homework for you. Here are the top companies providing product liability insurance that we recommend.

How does product liability insurance protect different parts of a product’s supply chain?

Product liability insurance benefits all the businesses involved in making, distributing, or selling products.

  • Manufacturers purchase this coverage to protect them if customers sue over a product they make. It can help pay for lawsuits related to design and manufacturing defects.
  • Retailers, distributors, and wholesalers can be held liable for damages caused by products, even if they didn’t design or make them. Product liability coverage also helps pay costs related to lawsuits over marketing issues, such as incorrect labels, missing warnings, or wrong directions.

What is the difference between product liability and general liability insurance?

Even though the two coverages are typically purchased together, these two types of insurance protect different things.

General liability insurance covers the most common small business claims. These include customer injuries in your shop or manufacturing facility or if you or an employee cause non-product-related damage to other people’s property. It also helps pay for lawsuits claiming you harmed a competitor’s reputation or violated copyright laws.

By contrast, product liability insurance is limited to covering damages related to the products you make or sell. 

The two types of insurance complement each other, so manufacturers, retailers, and suppliers typically purchase both types of coverage.

Does product liability coverage pay for problems with software or an app?

Product liability insurance doesn’t cover software, applications, and similar IT and technical products. Tech business owners should get an errors and omissions (E&O) insurance policy to protect against coding mistakes and software problems.

Product liability insurance vs. product recall insurance: How are they different?

They are actually different coverages. If you want to have coverage for product recalls, you need to buy another specific policy for that. And the policy only covers you when you specifically have a product recalls. It will pay for the expenses related to the recalls.

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