Estimated reading time: 5 minutes
Return To: Business Insurance – The Ultimate Guide
You have an amazing new product ready to be launched in the market. You worked countless hours to perfect its design, development, and marketing and you are finally ready to introduce it to your target audience.
Before you do so, it is important to ensure that you have the right business insurance to protect your brand. This is where business product liability insurance comes in.
Many companies make the mistake of not securing this type of insurance when starting out. The two most common reasons are that it can feel costly and unnecessary. After all, you already know that your product is the best in the market, so why should there be any problems with it?
Product liability insurance for small businesses is important as it can protect brands from potentially devastating lawsuits.
What Is Product Liability Insurance?
Product liability insurance is a policy that protects the seller, distributor, or manufacturer of a product from legal liability arising from a defect that has caused bodily injury or property damage associated with using the product. It is primarily intended to cover the costs associated with the legal process in case of claims.
Some insurance companies offer product liability insurance for small businesses as part of their general liability policy.
The expenses that are associated with defending a product liability claim can be numerous. These include the defense itself, medical cost, and litigation.
You may also have to take care of additional expenses for:
- Surveillance
- Litigation management
- Private investigators
- Appraisers
- Hearing representatives
- Fraud investigators
What Is the Cost of Product Liability Insurance?
The cost for product liability insurance varies greatly based on the risk associated with each product. This risk is determined by the type of product, amount of revenue obtained, how it is marketed, and what safety measures were used. Products such as firearms and fireworks have a higher cost for product liability insurance compared to shoes or camping gear.
For products labeled under the low-risk category, you can expect around $0.25 for every $100 in revenue. For instance, if you sell about $500,000 worth of products every year, you can pay around $1,250 for product liability insurance.
The actual expenses could be significantly lower or higher based on the type of product you manufacture, sell, or design including the annual revenue made by your company.
Types of Product Liability Claims
A product liability claim usually involves one of the following:
Design Defect
The stage by which a product is designed is vital to how it functions after it has been put together. If there is a mistake or flaw during this step, problems can happen throughout the life of a product.
Despite being put together with extreme care, the product can still be inherently dangerous if its design is already a problem. This is known as a design defect.
A plaintiff in a product liability case can establish that a design defect exists once they have proven that there could have been an alternative design that is safer than the original.
Manufacturing Defect
Despite having a safe design, a product can still have problems where there are errors or mistakes made during its manufacturing process.
A manufacturing defect happens when an item is not made according to its guidelines due to the way it was assembled. Manufacturing defects can affect one item or a whole product line and can be the result of a system malfunction or human error.
Marketing Defect
A company is responsible for disclosing potential hazards or risks that a customer would not discover by themselves through the ordinary use of an item. Companies that fail to warn about potential risks could be held accountable in a product liability lawsuit.
That is why you can see many products having many labels, stickers, and other safety warnings on their packages. Companies need to be one step ahead and ensure that their consumers are aware of the potential risks in using their products.
Here are examples of these types of product liability claims.
| Type of Claim | Example |
| Design Defect | A toy company uses very small parts that can easily choke a child. |
| Manufacturing Defect | A person is injured when the blade guard from their saw flies off and claims that it was improperly installed. |
| Marketing Defect | A person sues a company for selling paint thinner that has no warning labels indicating that it should not be used in an enclosed environment. |
Do I Need Product Liability Insurance?
Even if you believe that the products you sell, distribute, or manufacture are safe to use, there is always the possibility that something will go wrong with them. Accidents can always happen, and a product liability claim is often costly especially without the right business insurance.
Although strict quality control and other risk management techniques are the first line of defense against product liability problems, having the right insurance is an essential part of a sound strategy.
If you find yourself in a product liability lawsuit with no insurance, you will regret not getting the policy beforehand.
Here are some of the most common businesses that should have product liability coverage:
- Bakeries and food shops
- Clothing shops
- Coffee shops
- Equipment suppliers
- Restaurants
- Online retailers
- Pet supply stores
- Print shops
- Software distributors and manufacturers
- Website designers
- Wholesalers
It is important to keep in mind that wherever you may be listed in the product supply chain, you may still need product liability insurance. Even if you did not manufacture the product yourself, you could still be responsible when a problem arises.
To be sure, you can contact the insurance experts to be sure you are covered.
Conclusion
Possessing small business product liability insurance is an absolute must nowadays.
Although product liability and other business insurance expenses may seem quite expensive, it is important to keep in mind that these policies exist to protect your company in case of a lawsuit. Many small business owners do not expect to go through such a scenario, but once they do, they will be grateful knowing that they have the right insurance policies in place.
ALLCHOICE Insurance offers businesses a safer way to obtain their insurance. You can request a quote to find out how much product liability insurance coverage will cost you.