Learn about product liability insurance for small business which protects your business against claims of personal injury or property damage caused by the products you sold or supplied. People can be injured by how a product is designed, manufactured, marketed or even misused.
Product Liability Insurance For Small Business
If you are a manufacturer, supplier or even a retailer you must have heard of product liability insurance for small business to protect yourself from any unwanted or unexpected incidents related to your products.
What is product liability? In the simplest sense, product liability means that your company or you as an individual seller are liable to any damage caused by the product you manufacture, produce, or sell. While you aren't generally going to be held responsible for obvious cases of misuse or user neglect, it's definitely not enough to just create, ship, or sell a product and say "It's outta my hands now." If defects or design flaws in your product cause someone else damages, you could be held accountable.
This is where product liability insurance for small business comes in. It is a form of business insurance that covers the cost of any damage that your product might cause. Product liability insurance generally covers medical costs, legal fees, and awarded damages. In addition to these, it can also be extended to cover the cost of recalling your products as well as the resulting loss of your business.
Who Needs Product Liability Insurance?
When we think of products doing damage that a business might be held liable for, we often think of the most common examples: small children choking on mis-labeled toys, people blowing up Thanksgiving turkeys in a deep fryer due to poor manufacturer instructions, and cars suffering engine damage because of a defect on the production line-to name a few.
So, while it's obvious that anyone who is involved in the sale of a physical product needs liability insurance, there are some more subtle "products" that can also incur liability. Imagine you programmed software that helps investors gauge the real estate market in order to decide where to buy and sell next. If a glitch in your software causes investors to lose money, then you could be held liable for their losses.
Even though we don't typically think of a computer program as a product that could cause damage, it really is. Damage can be physical, but it can also be financial, emotional, social, and more. So the answer to the question Who needs product liability insurance for small business? is truly anyone involved in the sale of goods.
So what's at stake that you have to get product liability insurance for small business? Beyond the obvious answer of your bank account, there's also another answer: your good name. You are legally on the hook once only one of your products does any kind of damage. A solid insurance policy helps you cover those costs and helps prevent your company from making the headlines of a news article.
Types Of Product Liability
Product liability can be categorized in four ways: strict liability, negligence, breach of warranty and miscellaneous consumer protection claims. Complaints can come in the form of three kinds of third party accusations, which are as follows:
- Manufacturing or Production Flaw - This implies that there was a fault in the production process that made the product unsafe.
- Design Defect - This implies that the design of the product itself was faulty which could have caused damage to the customer.
- Defective Warning or Instruction -This implies that there were insufficient warnings for the user on the label of the product to avoid damage.
It does not matter if you manufacture a product or not. Even if you distribute a product, you can be held liable to these claims. On top of that you can be held liable for alleged negligence as part of the "stream of commerce" liability model. This model implies that since you put your product in the commerce stream, you should be held legally responsible for any damage done to a consumer. This model is followed by most state courts, thus putting any retailer, manufacturer, or distributor in great potential for risk.
How Much Does Product Liability Insurance For Small Business Cost?
The costs of product liability insurance policies vary greatly. The cost of your insurance will depend on the amount of products you manufacture, your sales volume and your business's role. Following is a quick list of the main factors considered in pricing:
- The type of products you make.
- The market you manufacturer products for.
- How much of a liability your products are.
- The amount of products you make.
- The insurance company you work with.
Some business might underreport or lowball their sales estimates in order to get lower rates, but this practice can lead to penalties during an audit. The better way is to assess your products and sales as accurately as possible. This helps you prevent overpaying for your insurance. And you should be extra careful during your assessment so that you don't have any overlapping or redundant coverage.
As with any type of insurance, the cost typically comes down to the potential risks. Products with a high likelihood of damages or those with the potential for very costly damage, could cost more to insure. Medical equipment, for example, is probably going to cost more to insure against damages than typical home goods.
Following is an example list of businesses that should always have a product liability insurance policy in force:
- Asian Products
- Auto & Boat
- Aviation & Aerospace
- Beauty & Home Based Business
- Children's Products
- E-Cig Manufacturers & Distributors
- Firearms Industry
- Gas & Oil Products
- Health & Beauty Products
- Health & Fitness Equipment
- Latex Gloves
- Leisure Equipment
- Medical Equipment
- Medical Marijuana Insurance
- Motorcycle Manufacturers
- Nutraceuticals & Dietary Supplements
- Racing Products
- Renewable Energy Products
- Scooter & Motorcycle Importers
- Sports & Recreational Equipment
- Truck & Trailer Products
Product Liability Insurance For Small Business - The Bottom Line
We hope this article on product liability insurance for small business has been informative. Whatever stage of the stream of commerce your business falls under-manufacturing, distribution, retail (or all three!) - product liability insurance is one form of coverage that you can't neglect.
You may have created the smoothest production line in the industry. You may have higher manufacturing standards than all of your competitors. You may double and triple check every product on your shelves. It doesn't matter because accidents happen. When you deal in large volumes of sales, something eventually slips through the cracks. Machines malfunction, humans err, and customers do the unexpected.
If a person or their property gets damaged using one of your products, you want to know that your business in protected by the best product liability insurance policy available. That's why you should give us a call or fill out our simple quote form and talk to one of the product liability experts at EK Insurance about finding a plan that works for you.