Product Liability Insurance: What It Covers, Who Needs It
Product liability insurance can help protect your business if a product you make or distribute hurts someone.
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Lead Writer & Content Strategist Product liability insurance helps protect businesses if they are accused of making, distributing or repairing a product that causes harm.
Some product liability coverage is typically included in a general liability insurance policy. But if your business faces greater risk, you might need to increase your limits or purchase additional coverage.
Here's what this kind of business insurance covers, how much it costs and how to evaluate quotes and select a policy that's right for your business.
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What is product liability insurance?
Product liability insurance helps protect your business when a someone claims that a product it made or sold caused harm.
Claims of physical injury or property damage can be brought by someone who the bought your product, used your product or was a bystander while someone else was using it.
The physical harm or damage caused by the product can be the result of the following:
- Design flaws.
- Product defects.
- Inadequate instructions, labels and warnings.
Just about any product has the potential to cause harm or property damage. For example, food sold at a restaurant could make someone sick. A small toy not labeled correctly could be a choking hazard. A computer purchased online might overheat and cause damage. A mower repaired at a local shop could malfunction and injure the user.
What types of businesses need product liability insurance?
Product liability insurance is not legally required. But a business that does any of the following should consider it:
- Manufacturing.
- Distributing.
- Wholesaling.
- Importing.
- Retailing.
- Installing.
- Repairing/modifying.
Your general liability insurance policy probably includes at least some product liability insurance. If you think your business is at high risk of a lawsuit, talk to an agent about more coverage.
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What costs does product liability insurance cover?
Product liability insurance would typically help with the following costs associated with an injury or property damage claim:
- Your legal fees.
- Settlements and court-ordered judgments paid to the injured party.
- Medical bills of the injured party.
What costs aren't covered by product liability insurance?
The following generally aren't covered by product liability insurance:
- Recall costs and inventory losses. To cover the costs associated with a recall, product recall insurance can be purchased.
- Employee injuries. Workers’ compensation insurance will generally cover employees who are injured or become ill at work.
- Customer injuries on a business property. General liability insurance would help cover the medical expenses of a non-employee injured at your business.
How much does product liability insurance cost?
Product liability insurance is often included in general liability insurance. Here's how much general liability insurance costs for common industries.
Need additional coverage? Estimates vary. For food product liability insurance, online brokerage Insurance Canopy says its customers pay $800 to $1,400 per year .
However, the cost of business insurance varies widely. How much you will pay for product liability insurance will depend on the risk level associated with your business.
Some factors that may influence your premium amount include the following:
- Type of product. Products that are more likely to result in harm to the consumer if defective, such as food items, result in higher rates.
- Sales. The higher your sales, the more you'll pay for insurance.
- Position in supply chain. Manufacturers pay higher rates than distributors.
- Coverage limits. More coverage comes with higher premiums.
- Claim history. Previous claims will increase rates.
Product liability coverage limits
Liability insurance policies typically have an occurrence limit and an aggregate limit. The occurrence limit is the maximum amount the insurer will pay per claim. The aggregate limit is the maximum amount the insurer will pay in total for multiple claims during the policy period (usually one year).
For example, "$1 million / $2 million" is a common limit structure. That means the insurance company will pay up to $1 million, after your deductible, to settle a single claim. It will pay up to $2 million over the course of your policy. This would cover two $1 million claims or many smaller claims.
If your business uses retailers to sell your products, the coverage limits you select for your policy may also need to meet their requirements. Check your contracts to make sure your insurance policy complies.
How can I get product liability insurance?
If you already have general liability insurance, some product liability protection is most likely included in your coverage. A commercial general liability insurance policy protects business owners if one of their products or completed projects is accused of causing harm to someone later. This is may also be called "products and completed operations" coverage.
But if your product liability risks are significant, you should consider buying additional product liability insurance coverage.
You may also need separate coverages, like product recall insurance, to cover other product-related risks.
A licensed commercial insurance agent can help you find insurance for your business. You can shop online and get a quote. Or, you can call an insurance company and talk to a representative.
Consider starting with the following:
- If you don’t already have a general liability insurance policy: The Hartford specifies that their general liability insurance policies include some product liability coverage. That’s the case with most insurers, but if you’re concerned about product liability risks, make sure to confirm that your policy includes products-completed operations coverage.
- If you need additional coverage, like product recall insurance: Look for an insurance company like Travelers, which offers packages designed for specific industries. These can make it easier to shop for insurance coverage tailored to your needs.
- If you want robust product risk management services: Chubb offers product recall insurance, as well as a long list of educational programs for its clients, including seminars on product liability laws; product user guides and instruction manuals; product warnings and labels; and more.
» MORE: How to get business insurance
How to compare product liability insurance quotes
The cost of product liability insurance can vary significantly. The best way to know if you are getting a good deal is to shop around and review at least three quotes.
You can expect every insurance quote you receive to be slightly different. But it’s easier to compare quotes if they have similar coverage limits and deductible amounts. Review the following factors to choose the best coverage.
Price
Quotes that fall well outside your budget may need to be set aside.
Coverage limits
Limits should be similar if you provided the same information during the quote process. In general, if you can comfortably afford a higher limit, it's probably a good idea.
Deductibles
A higher deductible can reduce your insurance premium, but your business will be responsible for paying this amount out of pocket if a claim is filed. Select an amount that won’t put your business in a financial bind if you have to pay it.
Financial strength ratings
When purchasing insurance, it’s important that the company issuing the policy has the financial ability to pay claims. At NerdWallet, we use A.M. Best's financial strength ratings to inform our star ratings. We recommend avoiding insurance companies with ratings that fall below "good," which is usually an A.
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- 1. Insurance Canopy. Food & Grocery Product Insurance.
