As a small business owner, I know you’re juggling a million things at once. From running the day-to-day operations to making sure your products are top-notch, you’ve got your hands full. But here’s something you don’t want to overlook—product liability insurance. It might not be the first thing on your mind, but trust me, it can save you from some serious headaches (and financial disasters) down the road. Let’s dive into some of the most frequently asked questions I hear about product liability insurance.
What Is Product Liability Insurance?
Simply put, product liability insurance protects your business from claims related to product defects that cause injury or damage. Whether you manufacture, distribute, or sell products, you could be held legally responsible if something goes wrong. And with about 300,000 product-related injuries occurring each year in the U.S. (according to the Consumer Product Safety Commission), this is a risk you don’t want to ignore.
Who Needs Product Liability Insurance?
If your business makes, sells, or distributes a product, you need it—period. Whether you’re selling handmade crafts on Etsy or distributing goods across the country, if something you sell causes harm, you could be liable. Even if you just package the product and don’t actually make it, you could still be on the hook.
Fun fact: About 43% of small businesses in the U.S. have experienced or will experience a product-related claim at some point. Yikes!
What Does Product Liability Insurance Cover?
Product liability insurance typically covers three main areas:
- Manufacturing Defects – These are flaws that happen during the creation of the product, making it dangerous to use.
- Design Defects – These are flaws in the product’s design itself that make it inherently unsafe.
- Marketing Defects – This includes improper labeling, insufficient safety warnings, or inadequate instructions that can lead to misuse.
For example, let’s say you own a company that sells electric kettles. If one of those kettles malfunctions and causes a burn injury to a customer, your product liability insurance would cover the resulting legal costs and damages.
How Much Does Product Liability Insurance Cost?
The cost of product liability insurance depends on the type of products you sell, your business size, and your claim history. On average, a small business might pay somewhere between $400 and $1,200 annually for product liability coverage.
This is a small price to pay when you think about the potential cost of a lawsuit. For instance, the average product liability lawsuit settlement is around $400,000! That’s the kind of financial hit that could put a small business out of commission for good.
What Happens If I Don’t Have Product Liability Insurance?
Without product liability insurance, you’re exposing your business to significant financial risk. If a customer sues you for damages related to a faulty product, you’ll be on the hook for legal fees, court costs, and possibly a hefty settlement—all out of pocket. And let’s face it, no one’s got a few hundred thousand dollars lying around just for lawsuits.
Imagine selling a children’s toy that ends up being a choking hazard. One lawsuit could devastate your business, especially considering the millions of dollars some companies have had to pay in settlements.
Can Product Liability Insurance Be Bundled with Other Policies?
Yes! A lot of small business owners opt to bundle their product liability insurance with general liability insurance under a Business Owner’s Policy (BOP). It’s a more affordable option and provides broader coverage. By bundling, you can protect against both customer injury on your premises and issues related to the products you sell.
How Can I Reduce My Product Liability Risk?
You can’t eliminate the risk entirely (unfortunately), but there are some steps you can take to reduce your exposure:
- Test your products thoroughly before they hit the market.
- Follow industry safety standards and regulations.
- Provide clear, accurate labels and instructions.
- Maintain detailed records of the product design and manufacturing process in case you need to prove due diligence later.
