Many businesses face added liability when customers get injured or sick from products. A manufacturer, retailer and any other business involved with physical goods can be held responsible for a customer’s injuries, and these types of injury claims often sees high court settlements. Protect your business with product liability insurance to handle this specific situation.
What's in this guide?
- What is product liability insurance?
- How much does product liability insurance cost?
- Compare business insurance
- Do I need product liability insurance?
- How can I save money on product liability coverage?
- How do I compare policies?
- How can I prevent a product liability claim?
- Frequently asked questions about product liability insurance
What is product liability insurance?
Product liability insurance pays for legal fees and other expenses related to injuries or illnesses caused by a product design, manufacturing or marketing defect. Those expenses include court and lawyer fees as well as court settlements for medical bills, damaged property, personal hardship and financial losses for businesses in the product chain.
What is strict product liability?
Strict product liability refers to the manufacturer or seller’s responsibility for injuries a product causes, whether or not the business was negligent. This type of claim means the business can be held liable even if it took all necessary actions to ensure the product’s safety.
How much does product liability insurance cost?
The cost of your coverage can range from several hundred to several thousand dollars. Companies determine your rate based on your business’s product risk as well as other factors:
- Types of products you sell. Selling knives has more inherent risks than selling pillows, for example, making a knife manufacturer’s premiums more expensive.
- Your annual revenue. The higher the volume of products you sell, the more likely someone could get injured and the higher your premiums will be.
- How much coverage you buy. Product liability policies can cover sky-high limits, but more coverage means a higher premium.
- Your claims history. If you’ve faced product injuries in the past, expect to pay more than a similar business without previous claims.
Compare business insurance
Do I need product liability insurance?
Yes, if your business is responsible for injuries or damage that happen because of products you sell. Product liability claims often involve expensive settlements that can total much more than other liability claims.
In 2017, the median amount awarded for product liability totaled $1.5 million, according to the research company Thomson Reuters. Some claims went as high as $5 million. For comparison, the median award for medical malpractice claims was $800,000.
Businesses that may need product liability insurance include:
- Designers, engineers and developers
- Product manufacturers
- Parts suppliers
- Distributors and wholesalers
- Installation companies
Lawyers will determine who’s responsible for the product failure, and that blame doesn’t always lie with the manufacturer. For example, electricians may not have created or imported the products, but they could hold the responsibility if they didn’t install a product properly. You might even consider product liability insurance if you sell products as a secondary service, such as selling baked goods or cooking supplies at a farm stand or hair products in a salon.
How can I save money on product liability coverage?
You shouldn’t cut too many corners to save money on product liability insurance. But you can use these tips for savings:
- Use a broker. A broker has relationships with multiple insurance companies. You tell them what you need and the broker seeks out the best fit based on value and cost, saving both time and money.
- Get a bundled deal. You probably need a variety of insurance from commercial property to professional liability. Consider going through one company that can customize the perfect solution for you.
- Increase your product’s safety. You could reduce your premium or avoid future claims by improving your product’s safety or heightening quality control.
- Set up quality assurance checklists. This way you can spot product mishaps early in the manufacturing process.
How do I compare policies?
Once you’ve found a few quotes within your budget, take a close look at the benefits of each policy:
- Look for product recall coverage in manufacturing. Some companies offer protection against recalls to help you stay on top of customer safety. You might pay extra for this coverage.
- Check for risk flexibility. Consider companies that can adjust your policy with protection against your specific risks. Your company needs to handle coverage despite changing business conditions.
- Find out how to make a claim. Know the company’s time limits for filing a claim, claims settlement process and the availability of customer support.
- Take advantage of safety resources. Check to see what resources professional advice the insurance company offers, such as driver safety training. These benefits help you save time, money and hassle in meeting legal obligations.
- Understand what’s not covered. Review the company’s exclusions, such as situations that don’t qualify for coverage. You might need specific documentation or quality control procedures to get protection.
How can I prevent a product liability claim?
If you improve safety and meet legal requirements, you can avoid taking the blame for many situations. Tips to help you prevent liability claims:
- Think safety first. Make product safety a top priority in your company.
- Give clear warnings. Place warnings on your products like age limits or cautions against improper use. Also, include clear instructions to help customers use your product properly.
- Maintain quality control. Have a system in place to detect imperfect products on the manufacturing line or before setting products on your shelves.
- Keep vigilant customer service teams. These teams can detect trends in customers’ safety concerns and identify potential problems before they grow.
- Have a legal team in place. Consult with your legal team regularly to stay updated on new regulations for your product or industry.
- Keep good records. Document your safety and quality control procedures, reporting these to your insurance when necessary.
Frequently asked questions about product liability insurance
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