The Importance of Product Liability Insurance for Your Business
Product liability insurance protects a company if a product causes injury to a customer. If the company is held liable, the policy will usually pay for lawyer fees, court damages, and even the injured party’s medical bills. The cost of product liability insurance varies, but premiums typically range between 15 cents to $1.50 per $100 of annual sales revenue.
Product liability is one of the many risks that can be insured.
What Is Product Liability Insurance and How Does It Work?
Owners of businesses are responsible for injuries, illnesses, and property damage caused by the goods or services they provide to customers. In most jurisdictions, any company in the supply chain can be held liable for the damage caused by its products or services. This means that retailers, designers, wholesalers, suppliers, and distributors will all be prosecuted for the following:
Manufacturing flaws: When a manufacturing error results in a defect in a product that causes injury or damage; for example, a swing set with a loose or damaged chain.
Design defects: When an initial design causes an entire product line to be inherently unsafe, such as a top-heavy product that falls over too easily.
Defective instructions or warnings: When ineffective or inconsistent instructions result in an accident, such as a product that releases chemical fumes and the instructions do not specify “use only in a ventilated area.”
These lawsuits, as well as installation and service activities that take place off-site, are covered by product liability insurance.
Factors Influencing Insurance Costs
The cost of product liability insurance varies widely depending on your product’s risk classification. These will vary according to the size of your product, how it is sold, its safety features, and the size of your distribution.
Other factors that influence the cost of product liability insurance include:
Industries: Not only are certain products riskier than others, but some types of products are held to a higher standard (such as products meant for children) and as a result, they pay higher product liability premiums.
Location: Carriers set their insurance rates based on state insurance requirements and typical loss exposure.
Profit: Annual profit determines a company’s overall liability claim risk and influences the amounts awarded by courts.
History of claims: A business or product with a history of claims poses a higher risk to the insurer.
Coverage limitations: Policies can range from $100,000 protection but can go up to tens of millions of dollars. Higher coverage means more risk for the insurer, so premiums are higher.
Product Liability Coverage Specifications
Product liability insurance policies will differ from one carrier to another. Any business owner thinking about purchasing a standalone product liability policy should become acquainted with some of the information outlined below to ensure that their liabilities are adequately protected.
Exclusions from Product Liability Coverage
Product liability has many exclusions that give carriers grounds to reject claims or refuse to renew the policy. The following are five typical product liability insurance exclusions:
- Material exclusions: Many carriers do not cover such materials or ingredients; if you sell or manufacture a product that includes a prohibited material or ingredient, your policy would not cover it.
- Efficacy exclusion: If your product fails to perform its primary function, your insurer can deny your claim.
- Reporting exclusion: Failure to disclose new manufacturing methods, products, materials, or ingredients which result in your product not being covered by your policy.
- Product recalls: Most product liability plans do not cover the costs of withdrawing, inspecting, repairing, replacing, or losing use of an insured’s recalled product.
- Quality control exclusion: Manufacturers and distributors are required by product liability insurance companies to uphold quality management standards and ensure that their goods are safe for customers.
If your company produces or manufactures goods, product liability insurance is a must-have. It is simple to obtain a policy, and most policies are relatively inexpensive. This safety net might save you millions as a result of an unanticipated product defect.