You may have heard the term “product liability insurance” and wondered if it’s necessary for your small business. Learn what product liability insurance covers, how much it typically costs, which factors affect its price tag, and how to go about getting coverage.
What Product Liability Insurance Covers
In general, product liability insurance protects your business if a product you made or sold causes harm, certified SCORE mentor and business insurance expert Walt Abbott told The Balance via a phone interview. To explain the importance of product liability insurance, Abbott gave the example of a restaurant. If a customer at your restaurant got food poisoning or had some other bad reaction to the food, then product liability insurance would give you protection, assuming the incident happens for a covered reason. In general, your policy might cover:
Design defectsManufacturing defectsIf a customer hurts themselves with your product, even if it wasn’t your faultIf you didn’t provide proper warnings on how to use the product correctly
Typically, the insurance company would pay your legal fees and other costs related to defending your business during the lawsuit. If a patron is injured from the incident but doesn’t sue the restaurant, then the business owner would submit the information to their insurance company, who would make a determination of whether they want to provide a settlement—via financial or other means.
Is It Part of General Liability Insurance?
While there are rare occasions when product liability insurance is separate, it’s typically included as a part of general liability insurance, Abbott told The Balance. The purchase of general liability insurance has several different sections, and product liability insurance is often one of the sections that’s automatically included. If you feel it’s necessary to increase your protection beyond what your general liability policy offers, you can purchase additional limits of product liability insurance, Abbot said. You’ll also likely see product liability insurance included in a business owner’s policy, which is a specific type of insurance policy designed for small businesses. It includes general liability insurance, and business owners can add property and facilities coverage, too.
How Much Does Product Liability Insurance Cost?
The cost of business insurance coverage can vary considerably depending on a number of factors. A small business with a relatively small revenue could expect to pay around a $500 minimum premium for an annual business owner’s policy with general liability insurance, Abbott estimated. Whereas a manufacturing company dealing with a hazardous product would have much higher premiums; Abbott estimated an annual business owner’s policy starting at $2,000 in this case. The price of a business owner’s policy is based on your business’s revenue and the nature of the small business itself, among other factors. Underwriters also look at what experience a small business has in the particular field they’re working in, as well as what kinds of claims have been made against the business in the past.
How To Get Product Liability Insurance
A good place to start your search for business insurance might be reaching out to the company you have personal insurance with, and asking it if they also offer small business insurance policies. An insurance company will typically send you an application with a list of questions regarding the nature of your business, your experience, and information about past claims, among other details; it will quote the policy accordingly. You could also contact an independent insurance agent who could provide you with quotes from several different companies for comparison. Want to read more content like this? Sign up for The Balance’s newsletter for daily insights, analysis, and financial tips, all delivered straight to your inbox every morning! Correction - June 10, 2022: This article has been updated to correct the starting estimated rate for an annual business owner’s policy.
