Running a small business can come with a host of freedoms you might not have had before, like the ability to choose your own clients and guide the overall trajectory of your business. But with that increased freedom comes greater risks. One such risk is damage caused by your product itself and the resulting lawsuits. However, you can be protected against these risks by buying product liability insurance. Below we’ll look more in-depth at what this type of insurance is, how much it costs and where to find it.
- What is Product Liability Insurance?
- What Product Liability Coverage Should Small Businesses Look For?
- How Much Does Product Liability Coverage Cost?
- What Benefits Should You Consider for Product Liability Insurance?
- Compare Product Liability Insurance Quotes Through Digital Brokers
What is Product Liability Insurance?
Product liability insurance, as defined by Nationwide, “protects businesses from the fallout that occurs in the event that a product causes injury or other damage to third parties.”
Here are some excellent examples of these situations. Let’s say you’re a children’s clothing manufacturer and you make some clothing that fits poorly. So poorly that it poses a choking hazard to children. Or possibly you are a baker and what you bake triggers someone’s allergies. Both of those situations could result in lawsuits.
Product liability often covers a wide variety of issues. Those include:
- Accidental contamination
- Mistake in labeling
- Accidental product defect
- Extortion, such as when a product is sabotaged on purpose
- Malicious tampering
- Flawed marketing
- Government recall
Basically, when a product you make causes damage or harm, that is when product liability insurance could protect you. So this is an important type of insurance to look into if you make and sell physical goods.
What Product Liability Coverage Should Small Businesses Look For?
Product liability tends to be its own main type of insurance. When talking to insurance companies, you’ll ask for product liability coverage specifically.
According to the Insurance Information Institute, sometimes product contamination insurance will be its own policy. As the name suggests, it covers you in case your product is accidentally or maliciously contaminated.
Also, you’ll often see product recall insurance lumped in with product liability insurance. Product recall insurance protects against the costs associated with having to recall a defective product. Some of the expenses could be the actual costs of taking the product off the market after something has gone wrong or even fixing your company’s reputation. This is offered as a separate type of insurance.
How Much Does Product Liability Coverage Cost?
Costs can vary quite drastically for this type of insurance. That’s because it depends on how many products you ship and what type of products you sell. For instance, a larger-scale toy manufacturer will need significantly more coverage than a small-scale crochet shop. The scale of the first business and the fact that it makes products for children, who tend to eat everything, means it’s riskier to insure and the damages could equate to more.
The Hartford lists out several different factors that could affect your premiums:
- Exposure to risk: The likelihood that your product could harm someone
- Business location: As an example, higher populated cities tend to have higher premiums because a denser population means a higher chance of injury
- Years in business: Your experience has a direct effect on your premiums
- Type of business: If you operate in a riskier business, that can affect premiums
With this type of insurance, you are better off getting individual quotes for your type of situation. For example, for a local bakery with 2 employees in Wisconsin, the Hartford gives us a quote of $57 a month for a base product liability policy with $1 million coverage limit.
What Benefits Should You Consider for Product Liability Insurance?
Like most business insurance types, the two main factors that affect your price will be your deductible and your payout limits.
The deductible is how much you pay before your policy can cover you. The higher the deductible, the lower the premiums, since you’re paying in the deductible amount.
Payout limits are often labeled as per incident and aggregate (or how much the plan will pay out total). This is one of the most important factors in product liability insurance because not having enough coverage can still leave you on the hook for those costs. In general, if you are in a riskier business with a high product yield, you should get a higher payout limit.
Compare Product Liability Insurance Quotes Through Digital Brokers
Below we’ll compare what it’s like to get product liability quotes from some of the major quote comparison sites. We kept the same parameters as above with the single location bakery.
Embroker: This site has a very intricate application process. It wants to know everything about your product, including information about product testing and recall history. When you get to the end, it wants you to legally verify that everything is true and accurate. For that reason, we didn’t officially enter any hypothetical businesses. However, early in the process, we were able to verify that you can use this site to compare product liability insurance.
Coverwallet: This site states repeatedly that it does not offer single product liability quotes for our business profile when we tried the bakery. Then we entered a toy manufacturer, wholesale auto trader, and carpenter, but it gave us the same message. You might want to check this site for your specific industry.
- Product liability insurance covers you in the case of damages caused by a defective product that you made. For instance, if a child swallows a small piece that easily comes off a toy you manufactured.
- Product liability is often its own policy. You may also see product recall insurance, which is a separate product that covers the expenses associated with recalling a product from the market. Sometimes contamination insurance is offered as a separate product.
- It’s hard to pinpoint an average cost for product liability insurance, since many factors like product yield and the risks associated with your industry can affect premiums.
- It’s important to consider deductible amounts and payout limits. These can have drastic effects on premiums, but you also want to make sure you have enough coverage based on the scale and type of your business.
- Finding product liability insurance through online quote systems is more tricky than other types of small business insurance. Few major quote systems list product liability insurance as an option. Embroker and CoverWallet do, however. But you’ll have to enter your specific business and industry to see if you can get online quotes through these systems. For instance, CoverWallet does not offer these types of online quotes for all industries, even for some common industries that need it, like toy manufacturing.
How much does it cost for product liability insurance?
Unfortunately, this question has no one answer. Price can fluctuate based on industry risk and the size of your business. However, for reference, we did get a $57/month quote from the Hartford for a small bakery.
Is product liability insurance included in general liability?
Sometimes yes, but usually it is a separate product. Be sure to check with different companies to make sure what is all covered in each policy.
Do I need product liability insurance?
If you sell or manufacture a physical good, you should consider product liability insurance. All it takes is one person to be harmed in some way by your product for a lawsuit to result.