As a former claims handler and fraud investigator, Jason Metz has worked on a multitude of complex and multifaceted claims. The insurance industry can be seemingly opaque, and Jason enjoys breaking down confusing terms and products to help others mak.
Jason Metz Lead Editor, InsuranceAs a former claims handler and fraud investigator, Jason Metz has worked on a multitude of complex and multifaceted claims. The insurance industry can be seemingly opaque, and Jason enjoys breaking down confusing terms and products to help others mak.
Written By Jason Metz Lead Editor, InsuranceAs a former claims handler and fraud investigator, Jason Metz has worked on a multitude of complex and multifaceted claims. The insurance industry can be seemingly opaque, and Jason enjoys breaking down confusing terms and products to help others mak.
Jason Metz Lead Editor, InsuranceAs a former claims handler and fraud investigator, Jason Metz has worked on a multitude of complex and multifaceted claims. The insurance industry can be seemingly opaque, and Jason enjoys breaking down confusing terms and products to help others mak.
Lead Editor, Insurance Les Masterson Deputy Editor, InsuranceLes Masterson is a deputy editor and insurance analyst at Forbes Advisor. He has been a journalist, reporter, editor and content creator for more than 25 years. He has covered insurance for a decade, including auto, home, life and health. Before cove.
Les Masterson Deputy Editor, InsuranceLes Masterson is a deputy editor and insurance analyst at Forbes Advisor. He has been a journalist, reporter, editor and content creator for more than 25 years. He has covered insurance for a decade, including auto, home, life and health. Before cove.
Les Masterson Deputy Editor, InsuranceLes Masterson is a deputy editor and insurance analyst at Forbes Advisor. He has been a journalist, reporter, editor and content creator for more than 25 years. He has covered insurance for a decade, including auto, home, life and health. Before cove.
Les Masterson Deputy Editor, InsuranceLes Masterson is a deputy editor and insurance analyst at Forbes Advisor. He has been a journalist, reporter, editor and content creator for more than 25 years. He has covered insurance for a decade, including auto, home, life and health. Before cove.
| Deputy Editor, Insurance
Updated: Sep 5, 2024, 8:09am
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If you own a business that creates, manufactures, distributes or sells products, your company could be liable if a product causes harm to others—even if the customer uses a product incorrectly. The potentially high cost of lawsuits makes product liability insurance a vital component of a small business insurance policy.
Product liability insurance is a type of small business insurance covering claims that a product you created, distributed, manufactured or sold caused injury or property damage to someone or their belongings.
For example, if your company sold lotion that caused a severe allergic reaction, resulting in a lawsuit, your product liability insurance would pay for medical and legal expenses.
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If you sell a product, you’re a good candidate for product liability insurance. These types of businesses often buy product liability insurance:
A product liability insurance policy is also suitable for a construction and contracting business because it offers financial protection if a client decides to sue over damage caused by the finished work. For example, if a contractor installs a custom cabinet but the doors are defective, product liability insurance could cover the cost of fixing the defect.
The amount of product liability insurance you need varies depending on industry, location, annual revenue amount and claims history, says Michelle Shaver, senior vice president of Encova Insurance.
“If products are more hazardous in nature or sold in a highly litigious geographic territory, it may be advisable to carry higher coverage limits,” Shaver says.
Bryan Smith, vice president of product management at The Hartford, says the amount of product liability insurance coverage should be commensurate with the expected liability exposures that a business could face.
“The type and amount of product, the volume of sales and the number of parties involved in the production and stream of commerce will all impact the insurance needs of a business,” Smith says.
Product liability insurance covers legal fees, medical costs and compensatory damages in third-party lawsuits. It covers problems caused by your product, such as:
The types of defects covered by product liability insurance include:
Product liability insurance covers lawsuits for physical harm or damage caused by a product. It’s not designed to cover problems caused by software, apps, IT and technical products.
For example, product liability insurance doesn’t cover coding mistakes and software errors that cause financial harm to your customers. You need errors and omissions insurance for technology-related problems.
Product liability also does not cover:
Product liability insurance costs an average of $1,192 a year for small businesses, according to AdvisorSmith.
When it comes to product liability insurance premiums, your industry makes a difference. For example:
The main cost factors that affect the cost of product liability insurance include:
Without product liability insurance, your business may have to pay out of pocket for medical expenses, property repairs, legal fees, and other expenses related to accidents related to product defects.
Consider this potential scenario: Your company sells exercise equipment. Someone suffers an injury while using the equipment due to an equipment defect. They sue your company for medical expenses, lost wages and more. If your company is found liable and you don’t have product liability insurance, you’ll be responsible for all legal costs and any amount awarded to the injured customer.
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Lead Editor, InsuranceAs a former claims handler and fraud investigator, Jason Metz has worked on a multitude of complex and multifaceted claims. The insurance industry can be seemingly opaque, and Jason enjoys breaking down confusing terms and products to help others make well-informed decisions.
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