What is product liability insurance?

Product liability insurance protects small businesses against claims that a product the company made or sold caused bodily injury or property damage. Product liability insurance is sometimes also called products-completed operations coverage.

Product liability coverage is typically included in your general liability (GL) policy, but that varies by insurance company. Some manufacturers or retailers may need to add an endorsement to their GL policy. Also, some insurers sell product liability as a standalone insurance product.

It’s important to read your GL policy carefully, ask your agent questions if you’re unsure what’s covered and make sure your small business insurance protects your business from claims of product design flaws or defects.

A product liability lawsuit can be a stressful and costly experience. You could be liable for the damages your product causes, even if you aren’t responsible for the defect or if the injured party misused the product.

What does product liability insurance cover?

Product liability insurance covers medical costs for injured parties, your legal fees, judgments, settlements and jury awards. It provides coverage for physical damage caused by your product, such as bodily injury, illness (allergic reactions or food contamination), wrongful death and for damage to someone else’s property.

Product insurance also covers defects, including:

  • Design defects. A flaw in the product design before it’s manufactured.
  • Improper warnings. Not enough or incomplete warnings on the product explaining proper usage.
  • Manufacturing defects. A flaw in the product manufacturing process.
  • Marketing defects. Labeling errors, improper instructions or a lack of warnings on the product.
  • Strict liability. A customer gets injured by a product, but you aren’t found at fault.

It’s important to note product liability insurance is not the same as product recall insurance, which is a rider you can usually add to your general liability policy to provide coverage specifically for voluntary and involuntary product recalls if the product is defective, made of poor quality or harmful to others.

What does product liability insurance not cover?

Product liability insurance doesn’t cover the financial harm your products could cause, such as software errors, coding mistakes or other technology-related problems. Professional liability insurance for errors and omissions covers these types of claims.

It also won’t cover quality control problems, lost inventory or accidents that cause injuries or property damage to your customers while on your business premises, like slipping and falling. General liability covers slips and falls. Employee illness or injuries are not covered. Workers’ compensation insurance covers employees.

Do I need product liability insurance?

If your small business distributes, makes or sells goods or products, product liability coverage protects against lawsuits brought against you for design flaws or defects that cause injury, illness, death or property damage to others.

For example, you accidentally mislabel a bakery item you made. A customer has a severe allergic reaction after eating it and sues you. Or you buy a wholesale lot of defective toys unknowingly, a child gets injured from it and the parents sue you. Your product liability insurance covers their medical bills and your legal expenses.

The following industries, in particular, may benefit from product liability insurance:

Small businesses in charge of the entire product life cycle, from design to sale, like Etsy shop owners, are especially vulnerable, says Golnoush Goharzad, founder of products liability law firm Goharzad Law in Irvine, California. 

Why is product liability insurance important for small businesses?

Small businesses are much more likely to lose everything in a product liability case than larger companies with ample financial reserves. If the case goes to trial, the jury could award significant damages. Even if you get a reduction on appeal or settle for a lesser amount, you may have to lay off employees, close retail locations or cancel a business-expanding investment to cover your losses.

The U.S. Chamber of Commerce Institute for Legal Reform (ILR) published a paper in 2022 analyzing nuclear verdicts — jury awards of $10 million or higher — from January 1, 2013, to December 31, 2022. It found the most frequent (23.3%) nuclear verdicts were for product liability cases with a median award of $25 million per case. Verdicts were highest in 2022 at $36 million — a 50% increase from 2013. Product liability cases also accounted for one-third of mega nuclear verdict awards of $100 million or more.

Product liability insurance also protects you if your company sells products manufactured internationally. “I've been involved in cases where a local store sold a defective product, and the Chinese manufacturer failed to respond to any request for indemnification or subrogation, leaving the store's insurance having to take over the defense,” says Jason Turchin, a personal injury lawyer in Miami.  “Without that coverage, the store could have had to pay the judgment out of pocket, putting their store's financial health at risk.”

How much does product liability insurance cost?

The average cost of product liability insurance is $42 per month, according to Insureon data. However, your product liability insurance cost will depend on several factors, including:

  • Your business location
  • Annual sales revenue
  • Claim history
  • What product types you sell
  • Supply chain position
  • Your industry and its risk level
  • The value of your property
  • Your policy coverage limits, additional coverage add-ons and deductibles

How much product liability insurance do I need?

Your product insurance coverage needs depend on how many parties are involved in the production process, your sales volume and how many and what type of products you sell. The more products you put out, the more likely there is to be a defect or instance that a customer can injure themselves. Growing your small business may also increase your coverage needs.

“Product liability cases are one of the most expensive to defend, and that does not even include any money that has to be paid to the injured party,” Goharzad says. “A small business can be easily bankrupted if they don’t have coverage.” 

“One product defect can bankrupt a small business,” Turchin says. “In many states, any business in the chain of commerce from design to manufacture to sale may be responsible for injury or damage caused by a defective product.”

The best way to ensure you get enough product liability insurance for your small business is to work with an experienced commercial insurance agent. They can assess your risks and determine your coverage needs to make sure you’re adequately covered.

Product liability insurance companies 

Many of the best small business insurance companies offer product liability insurance. Product liability carriers include: 

  • Berkeley offers standalone or add-on product liability coverage across a network of companies that can customize your GL policy to your specific industry needs.
  • Nationwide provides business quotes online and has dedicated specialists available by phone to help you get the coverage you need.
  • Next Insurance says you can get coverage in less than 10 minutes.
  • Progressive provides specialized customer service through its Advantage Business Program, which lets small businesses shop, buy and get discounts on policies.
  • The Hartford has more than 200 years of experience offering business insurance and an extensive library of small business resources on its website.
  • Thimble says it can give you a quote and let you purchase a general liability policy with product liability coverage in minutes. 
  • Travelers offers product and service liability coverage and allows you to access its risk control panel to manage and minimize risks for your small business. 

Product liability insurance vs. general liability

General liability insurance is a common type of commercial insurance small businesses should have to cover claims made against them for bodily injury, advertising injury or property damage. For example, if you damage a client’s office wall while building shelves or a client comes to your retail store and trips and falls over a merchandise rack and is injured.

Product liability insurance is commonly included with general liability insurance. Product liability coverage protects the business against claims that a product or service was faulty or defective and caused bodily injury or property damage. 

How to get product liability insurance

Follow these steps to get product liability insurance coverage for your small business:

  1. Determine your coverage needs: Every small business has different insurance needs. The more products or services you sell, the more likely you are to be sued, creating a greater need for product liability coverage. If you’re unsure how much coverage you need and what coverages are best for your business, consider working with an experienced commercial insurance agent to evaluate your industry risk level and coverage needs.
  2. Consider a BOP: A business owner’s policy (BOP) is a package of policies that can be an affordable way to get general liability, product liability, business interruption and commercial property insurance in a single policy; it’s often cheaper than buying those policies individually.
  3. Compare insurance quotes: Coverage and costs vary by insurance company. Getting a product liability insurance quote from multiple companies can help you get the best coverage at the lowest price. Independent brokers work with many companies. They can analyze your company and find insurers and policies that fit your needs.
  4. Choose an insurance company: Comparing quotes is important, but don’t forget to compare the insurance companies themselves. Evaluate insurers based on factors like policy management tools, available discounts, financial stability and customer and claims satisfaction.
  5. Purchase a policy: Once you find the best small business insurance company, purchase the policy and make your first payment to get your coverage.
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What our expert says

Q: Why do small businesses need product liability insurance?

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Jason Labat Sales producer at Insureon, a small business insurance broker.
"Product defects can pose serious risks, such as bodily injury or property damage, which could negatively impact both your business and your customers. To protect against these risks, businesses that sell products need product liability insurance."

FAQ

What type of insurance covers a customer injury caused by a product design or defect?

Product liability insurance will cover injuries a customer receives from a product design or defect.

What is manufacturing liability insurance?

Manufacturing liability insurance is a custom insurance policy specific to manufacturing businesses, such as breweries, soda and drink manufacturers, and equipment, metal and plastic goods manufacturers. You can customize your coverage to meet your small business’s specific liability insurance needs with policies like commercial property, business income and workers’ comp insurance

Does general liability cover product liability?

Yes, most general liability policies include insurance for product liability. That said, general liability insurance coverage can vary by company, so comparing coverage details and policy options is a good idea. An independent agent can help you analyze your needs and find the best general liability policy and company to protect your small business.