There are many different types of insurance that a company can use to protect itself from liability in business. These range from very broad policies that generally protect the holder from losses to very specific types of coverage.

Food business insurance, as an example, covers specific issues that might arise for those companies operating in the food and beverage industry. But even this type of coverage can be further customized to protect business owners, such as in the case of catering business insurance for companies that prepare and serve food at third-party venues.

One notable type of business insurance is product liability insurance. As in the case of something like food vendor insurance, not all business types will need product liability coverage. But when it’s relevant to a company’s offerings and operations, it can be an extremely important safeguard against major loss and is often a necessity to conduct business.

Product liability insurance covers a company from the cost of product liability claims if property damage, bodily harm, illness or death, or other issues resulted from the purchase or use of a product. Product liability insurance is recommended for more than just manufacturers; many different types of businesses use insurance for product liability even when they are not responsible for an item’s production or quality.

However, offering a product for sale doesn’t automatically mean that product liability insurance is necessary. Understanding what this type of insurance provides will be helpful when determining whether it’s a sensible addition to a company’s risk coverage or something that’s simply not relevant.

What Businesses Need Product Liability Insurance?

Product liability insurance is generally needed by manufacturers, distributors, importers, retailers, and any business that handles goods to be sold to customers. This type of insurance will cover legal and medical fees and any compensatory damages if a business is held responsible when a product causes property damage, bodily injuries, illness, wrongful death, or other significant harm to a customer or user.

Product liability insurance is a necessity for manufacturers because it will cover damages if a fault is found with the product’s design and manufacturing. But apart from product construction and quality, product liability assurance also covers a company if issues have resulted from a product’s marketing, labeling, or instructions, or if any warnings are insufficient for customer safety.

Even if the harm caused by a product is not due to the negligence of a business, strict liability can still require a company to pay damages, but product liability insurance will cover those costs.

Product liability insurance applies only to physical products. Technical products, like software, apps, and digital goods are not covered by this type of insurance. Instead, errors-and-omissions insurance would be used to cover any damages resulting from faulty software, coding flaws, bugs, etc.

Product liability insurance isn’t just for brick-and-mortar businesses; this coverage is relevant for companies that conduct their business online, whether through their own e-commerce setup or a vendor marketplace like Amazon or eBay.

Contractors, installers, and assembly service providers might also consider product liability coverage if the products they’re constructing, installing, or assembling could cause damage, injury, or prompt litigation due to a defect.

But even with thorough product liability insurance, businesses are still responsible for costs that might result from selling, transporting, storing, and manufacturing goods, such as costs associated with product recalls or injuries that might occur when an employee or customer is handling a product. Additional business insurance or general liability coverage is usually required to cover these and other incidents.

How Much Does Product Liability Insurance Cost And Is It Worth It?

Generally, any business that deals with products in some way should strongly consider protecting itself and its assets from product liability claims. The amount of coverage needed and the resulting cost will vary based on many factors.

The type of business, the potential for risks and hazards associated with the product, and other factors, like previous claims and location, will impact the product liability insurance cost. Annual premiums can range from a few hundred to several thousand dollars.

Product liability insurance is sometimes a requirement to conduct business or operate in a facility, but this varies based on the industry, marketplace, product-type, and other factors. This means that, for many businesses, product liability insurance is more than just a worthy risk mitigation measure, but a necessity.