Congratulations! You’ve decided (or are deciding) to be part of one of the world’s largest e-commerce platforms to sell your product(s). Many individuals, companies, and brands use this platform to sell their goods. Why? Because of the sheer amount of exposure that you could experience with your product. And don’t forget Prime Day, Amazon’s middle-of-the-year (Black Friday equivalent) sales day, that brings millions flocking to the website for great deals.
There are clear benefits to selling on Amazon and gains to be made. But with increased visibility and growth there is also an increased exposure to claims and lawsuits related to your business and/or products. Unfortunately, there are inherent risks you may face by selling a product online—no matter what type of product it is. Before you get started selling on Amazon, you should consider protecting you and your business from and the products you sell with insurance.
However, you might be asking what risks could your business face by selling your product on Amazon? What kind of insurance do you need to protect your business? Product liability insurance? General liability insurance? What do these policies cover? And are there additional risks I could face and other insurance coverages to protect me?
We’re here to answer these questions and provide information that will help you easily navigate insurance.
Let's get started!
The Difference Between Individual and Professional Amazon Sellers
Before we get into details on insurance, it is important to know that Amazon offers two different options for sellers to sign up as—Individual and Professional. These two types represent a standard and a premium option for sellers and will affect the cost to do business with Amazon, access to tools, and might include caps on how many items you can sell per month on their platform. Of course, there are different reasons that a seller would choose one over the other.
Don't worry, to help you decide we'll give a basic breakdown of the plans below.
If you choose the Individual option, you will be limited to selling fewer than 40 items per month and will be charged a $0.99 fee for each item sold.
According to Amazon's Beginner's Guide to Selling on Amazon, this standard plan might be right if
- You plan to sell fewer than 40 items a month
- You want to keep up-front costs low
- You don’t need advanced selling tools or add-on programs
- You’re still deciding what to sell
To sign up for this option you can simply create your own account using the Amazon Business, (aka their seller’s management portal).
If you choose the Professional option, it will cost you a $39.99 fee per month. Unlike the Individual option, this option will allow for you to sell more than 40 items per month. It also grants you acces to additional data and reports as well as gives you access to sell your items with programs such as Amazon Business, Launchpad, or Handmade.
According to Amazon, this premium plan might be right if:
- You plan to sell more than 40 items a month
- You want access to advanced selling tools
- You’d like to apply for add-on programs like Amazon Business, Launchpad, or Handmade
- You’re an established ecommerce seller
To sign up for this option you can simply create your own account using the Amazon Seller Central.
Tip: Looking for more information between the Professional and Individual options? Visit Amazon's official Seller Central (their seller portal), for a complete selling plan comparison. Also check out their fee schedule for selling on Amazon for a more detailed list of costs associated with their services.
Bravo for deciding which type of account to sell under, but have you considered what risks you might face?
What Risks Could Individual and Professional Sellers Face?
Unfortunately, every business or individual that sells products online faces risks that could cost their business time, money, and resources to fight a lawsuit. Some of those risks could include bodily injury or property damage to individuals caused by the product(s) that are sold online such as (but certainly not limited to):
- Allergic reactions caused by the materials or ingredients in your product
- Chemical burns caused by the materials or ingredients in your product
- Choking hazards caused by your product
- Bodily injury caused by your product failing (e.g., a tv stand breaking due to structural design problems or a cabinet tipping onto an individual)
- Fire or electric shock caused by products that include some type of electrical elements
If this list is too generic for you, read on to find out about three real-life examples where products sold online (some specifically on Amazon) caused damage or harm to not only the consumer but also cost the seller!
Risk Example #1: Consider the unfortunate experience of consumer Wendy Weintraub, who used a hair dryer that she had purchased on Amazon. The hair dryer caught fire and spread to her home causing extensive property and emotional damage, and prompted a lawsuit directed at both the manufacturer and Amazon for reimbursement of more than $850,000.
Could you afford to pay these expenses on your own?
Risk Example #2: Another , whose laptop battery (that she purchased on Amazon) sparked and ultimately caused third-degree burns on her body and burned her bed, clothes, and floor. Both Amazon and the listed seller were named as defendants in the lawsuit.
Are you prepared to fight a claim like this?
Risk Example #3: Lastly, this disastrous legal debacle happened to online seller Doug Costello who sold a $40 printer and found himself in a 6 ½ year legal dispute facing $30K in damages. Sadly Mr. Costello had to go through multiple court cases brought on by a frequent lawsuit filer and ultimately cost him $12K in legal fees.
Do you have all of the time and money to respond to a situation like this?
Knowing the potential risks that you could face can actually become an asset to you.
Anytime you sell a product online you will inherently face risks. However, don’t let these horror stories deter you from earning extra income or making a good living! Knowing the potential risks that you could face can actually become an asset to you. That’s where insurance comes in. By preparing for potential incidents like these you can enjoy peace of mind by sharing that risk with an insurance company.
Now that you know some of the risks involved, let’s explain how insurance works and how it can protect you.
What Every Amazon Seller Needs to Know About Insurance
If you’re like most people, the mention of insurance might sound complicated, expensive, or even intimidating. Don’t worry though. After reading this, we hope you’ll feel more comfortable and confident knowing the basics of insurance, the types of coverages that are available, which coverages are right for you, and where to get a policy.
How does insurance work?
Each insurance policy requires a premium (or payment) to be paid and in return the insurance company promises protection for a period of time (typically one year, but could vary depending on the terms of the policy) under set limits and predetermined qualifications, conditions, and exclusions.
All of these could be categorized as coverage details. When researching policies with an insurance provider, it is important to understand each of these limits, what protection they provide, and any specifications required to make a claim on them.
The insurance provider should list information regarding each piece of coverage to provide context and specific details (this might be on their website or contained within the quote they provide to you). However, don’t worry if you don’t understand all of the technical insurance jargon. That’s where an experienced, licensed agent can provide assistance.
Did You Know?
Get a FREE Insurance Quote
In order to sell insurance within a specific state, an individual must pass an exam to become a licensed agent. Additionally, those agents are required to attend continued education courses each year to stay current on details, updates, and topics relating to insurance.
By understanding all of the coverage details, you can not only ensure you’re getting the right protection (whether for your own peace of mind or to meet requirements) for you and your business, but it can also help prevent any potential headaches, delays, or denial of claims if you need to file a claim in the future.
Why Does an Amazon Seller Need Insurance?
In a previous section, you read about some of the potential risks Amazon sellers could face. Insurance policies come in to help share in the transfer of risk so that you won’t have to be solely responsible for all of the costs associated with a potential lawsuit that might be caused by your products resulting in bodily harm, injury, or property damage.
Both Individual and Professional Amazon sellers need insurance. Why? Because, unfortunately, accidents do happen. No one wants to think that their product could cause harm to another individual, but it would be better to err on the side of caution rather than find yourself unprotected while facing a lawsuit. As long as you are selling a product, your business could face risks.
It would be better to err on the side of caution rather than find yourself unprotected while facing a lawsuit.
Individual- If you chose to be an Individual Amazon seller then purchasing an insurance policy is optional -meaning Amazon does NOT require you to have it to sell on the platform. By selling fewer than 40 products a month you might carry less risk compared to a Professional seller. However, don’t be fooled into thinking you should ditch the coverage.
It only takes one faulty or mislabeled product to bring you into a lawsuit (remember the examples we mentioned before). So do your research to consider the benefits of being protected—like having peace of mind knowing you’re covered.
Professional-If you chose to be a Professional Amazon seller then insurance IS a requirement to sell on its platform. In order to read about the details of Amazon’s insurance requirements, you must first sign up as a seller and log into their Seller Central portal to access the Amazon Services Business Solutions Agreement. Currently, this agreement sets forth requirements for General Liability Insurance, Product Liability Insurance, and potentially Umbrella/Excess Liability Insurance requirements.
What Are the Different Types of Insurance an Amazon Seller Needs?
Before we answer this more in depth, as an Amazon seller you’ll need to consider two things:
- What insurance coverage am I required to have to sell on Amazon?
- What inherent exposures do I have as a business owner?
Answering these questions will not only help you check the insurance box to sell on Amazon but will also help you consider other types of insurance that you might want or need to protect your business. The different types of coverages will depend on multiple factors of your business like the size, the products you sell, number of employees, etc.
Each of these factors could present different risks to you that could cause a negative impact to your business if you found yourself without proper coverage. We also understand that you do not want to become “insurance poor” (in other words paying for more coverage than you actually need so you cannot afford other items that you want or need in life).
Utilize this table for a basic reference to the different types of insurance an Amazon seller should consider:
|Type of Insurance Coverage||Basic Description of Coverage||Required to Sell on Amazon?||Required by law?|
|General Liability Insurance||Protects your business from lawsuits related to property damage and bodily injury||Yes, if you are a Professional Seller or meet other limits||No|
|Product Liability Insurance||Protects your business from lawsuits involving bodily injury caused from the product(s) you sell||Yes, if you are a Professional Seller||No|
|Excess Liability Insurance||Provides added limits of coverage to an existing policy||Depends on the limits that your base policy covers and if there is any difference between that limit and the limit that Amazon requires.||No|
|Additional Insured (AI) Endorsement||Allows you to add third-parties to be covered on your policy (like Amazon)||Yes, Amazon requires its Professional Sellers to list Amazon as an AI on their general liability policies||No|
|Workers’ Compensation||Provides employees with compensation in the event they are injured on the job||No||Yes, if you hire employees|
|Product Recall Insurance||Covers expenses related to recalling of your product once it has been released to the public||No||No|
|Commercial Auto Insurance||Covers commercial vehicles and drivers used for business purposes.||No||Yes, if you or your employees operate a vehicle for business purposes|
|Business Personal Property/Inventory||Covers physical damage or loss to your contents and inventory.||No||No, but it may be required by contracts you have with private entities such as banks.|
Let's explore each of these coverages more in depth.
What Insurance Coverage Am I Required to Have to Sell On Amazon?
The short answer to this question depends on a few factors including if you are a Professional seller and if your gross proceeds exceed the threshold for your elected country (under specific timeline guidelines). Considering these factors, Amazon sellers are required to have coverage in these categories:
- General Liability Insurance
- Adding Amazon as an additional insured (AI) on the policy
- Product Liability Insurance
- Excess or Umbrella Liability (not applicable in all cases)
It’s important (and in your best interest) to understand the language of Amazon’s agreement as well as what each of these types of insurance covers. Because if you sign up as an Amazon seller, you will be held responsible for the terms and conditions you agree to.
To help you understand Amazon’s requirements for insurance, we’re going to list some of the actual language in their Amazon Services Business Solutions Agreement* and break it down so you can understand.
First, let’s talk about liability. Liability explains who is responsible for something, especially from a legal perspective. In section 8 of the business solutions agreement, Amazon states:
We WILL NOT BE LIABLE (WHETHER IN CONTRACT, WARRANTY, TORT (INCLUDING NEGLIGENCE, PRODUCT LIABILITY, OR OTHER THEORY), OR OTHERWISE) TO YOU OR ANY OTHER PERSON FOR COST OF COVER, RECOVERY, OR RECOUPMENT OF ANY INVESTMENT MADE BY YOU OR YOUR AFFILIATES IN CONNECTION WITH THIS AGREEMENT, OR FOR ANY LOSS OF PROFIT, REVENUE, BUSINESS, OR DATA OR PUNITIVE OR CONSEQUENTIAL DAMAGES ARISING OUT OF OR RELATING TO THIS AGREEMENT, EVEN IF AMAZON HAS BEEN ADVISED OF THE POSSIBILITY OF THOSE COSTS OR DAMAGES. FURTHER, OUR AGGREGATE LIABILITY ARISING OUT OF OR IN CONNECTION WITH THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED WILL NOT EXCEED AT ANY TIME THE TOTAL AMOUNTS DURING THE PRIOR SIX MONTH PERIOD PAID BY YOU TO AMAZON IN CONNECTION WITH THE PARTICULAR SERVICE GIVING RISE TO THE CLAIM.
By signing the seller agreement, this means that you agree that Amazon will NOT be liable for a number of reasons including (but not limited to) negligence, product liability, loss of profit, loss of investment, and damages.
It’s helpful to know this context because if you agree that Amazon is NOT liable, then you and your business will hold ALL of the risks and costs if you were to be sued as a result of any of the things listed above. That’s where insurance comes into play. Before we dive into the insurance section, let’s cover some of their definitions to terms used in that section.
They define INSURANCE THRESHOLD as:
"Insurance Threshold" means the applicable one of the following:
- Ten Thousand Canadian Dollars ($10,000) (if the Elected Country is Canada),
- One Hundred Thousand Mexican Pesos ($100,000) (if the Elected Country is Mexico),
- Ten Thousand U.S. Dollars ($10,000) (if the Elected Country is the United States).
And they also define INSURANCE LIMITS as:
"Insurance Limits" means the applicable one of the following:
- One Million Canadian Dollars ($1,000,000) (if the Elected Country is Canada),
- Ten Million Mexican Pesos ($10,000,000) (if the Elected Country is Mexico),
- One Million U.S. Dollars ($1,000,000) (if the Elected Country is the United States).
Knowing the context and meaning of these definitions will help as you read the insurance section in their agreement. Amazon’s insurance section states the following:
If the gross proceeds from Your Transactions exceed the applicable Insurance Threshold during each month over any period of three (3) consecutive months, or otherwise if requested by us, then within thirty (30) days thereafter, you will maintain at your expense throughout the remainder of the Term for each applicable Elected Country commercial general, umbrella or excess liability insurance with the Insurance Limits per occurrence and in aggregate covering liabilities caused by or occurring in conjunction with the operation of your business, including products, products/completed operations and bodily injury, with policy(ies) naming Amazon and its assignees as additional insureds. At our request, you will provide to us certificates of insurance for the coverage to the following address: c/o Amazon, P.O. Box 81226, Seattle, WA 98108-1226, Attention: Risk Management.
So let's put it all together now.
First, for a seller whose elected country is the United States, the threshold is $10,000. Meaning that if your gross proceeds exceed this amount at any point over a consecutive three-month period then you are required to obtain insurance coverage. Second, the required coverage must be paid at your own expense and needs to include:
- Commercial General Liability Insurance
- Umbrella or Excess Liability Insurance (if applicable)
- Product Liability Insurance
Third, these policies must have a $1M limit per occurrence. Amazon also requires that you list them as an additional insured and send them a certificate of insurance (COI) to prove that you have the required coverage. You can send your COI to the following address:
c/o Amazon, P.O. Box 81226, Seattle, WA 98108-1226, Attention: Risk Management
What is an Additional Insured? An additional insured (AI) could be an individual, organization, promoter, company, or entity that is not automatically included as the insured on an insurance policy. However, they can be included on the policy (sometimes at an extra charge) at the request of the named insured.
By being listed as an AI, they will be protected under the insured’s policy. This allows them to file claims under that policy if they are sued due to your business activities or products.
Now that you know more details about the limits, additional insured and Certificate Of Insurance requirements, and the types of insurance you need to obtain, we’ll explain what each of those types of insurance cover.
Let’s dive in!
General Liability Insurance
This is one of the most common liability insurance coverages and can help cover claims that your business caused relating to bodily injury or property damage. It is also known as commercial general liability insurance (CGL).
When you’re reviewing the coverage details of a general liability policy there are two different limits that you’ll want to know about—occurrence and aggregate.
Occurance The limit applies to how much it will pay out for any one claim or incident. For example, if your occurrence limit is $100,000 and you filed one claim for $45,000 it would be covered if it met the requirements. However, if you filed one claim for $150,000 then the most that could be covered would be $100,000 (which is the limit per occurrence) and you would likely be responsible to pay the additional $50,000.
Aggregate The limit applies to how much it will pay out for any one claim or incident. For example, if your occurrence limit is $100,000 and you filed one claim for $45,000 it would be covered if it met the requirements. However, if you filed one claim for $150,000 then the most that could be covered would be $100,000 (which is the limit per occurrence) and you would likely be responsible to pay the additional $50,000.
- If you have a traditional storefront where patrons visit you, and an individual slips and falls in your place of business and files a claim against you.
- If you rent a space and you cause a fire that damages that location, that could fall under “damages to premises rented by you.”
- If you or your business causes a fire in a storage unit or warehouse you rent and that fire causes damage to other tenants property (maybe in an adjoining warehouse), then in that case, you could be found liable for the damage to their property.
Product Liability Insurance
As an online retailer, selling products IS your business, but what if one of those products causes harm or injury to one of your customers? Having a lawsuit that alleges your products hurt someone could cost you thousands of dollars. A General Liability Policy that includes Product Liability is a really important safeguard for your business.
If you sell any type of product then you will want to get Product Liability Insurance to protect you against claims that your product caused bodily harm or property damage. Not only is this a good business practice, it is also a requirement of Amazon. As long as not specifically excluded, your General Liability policy should include this coverage. If you have any concerns if it is included, it would be important to discuss this with a licensed insurance agent to ensure the coverage is in place to meet Amazon’s requirements.
- Your cosmetic product causes allergic reaction to a customer and they file a claim against you.
- Your electronic product overheats and burns a user while using it and they file a claim against you.
- Your cooking utensil breaks while a customer is using it and drops on their foot causing bones to break and they file a claim against you.
This coverage provides additional liability limits above your existing liability policy. For example, if you obtain a general liability policy and the occurrence and aggregate limit is only $1,000,000 and you have a claim that totals $1,500,000, then an Excess policy could cover over and above the General Liability policy up to the Excess Policy limits. Excess may not be required for every Amazon seller, but should be carefully considered based upon your specific needs and the coverage details of your General Liability and Product Liability Insurance policies.
Now that we’ve covered the required coverages, let’s talk about other risks and coverages you might want to also consider.
Here we go!
What Other Exposures Do I Have as a Business Owner?
Aside from being covered with the required insurance to become an Amazon Professional seller (including General Liability, Product Liability, and potentially Excess Liability), you will also want to consider government legal requirements and other aspects of your business that might carry additional risks to you and your business.
Check out the types of coverages and risk examples below.
Amazon does not require this insurance to sell on their platform. However, if you operate a business within the United States then, in most cases, you are required by law to provide Workers’ Compensation insurance for your employees. While the majority of states’ laws require it, some states, such as Texas, recommend it as optional coverage.
In the event of a work-related illness or injury, this insurance can help protect your business and your employees by covering:
- Medical expenses
- Missed wages
- Vocational training
- Death benefits
Each state is in charge of their own Workers’ Compensation program by setting laws, premiums, and deciding who can sell and handle these policies. So expect differences in cost and rules depending on the state you do business in.
You should also be aware that, depending on your state’s workers compensation laws, certain businesses could be exempt based on the type of work they do. Because of all of these factors, and more, it is important to research your state’s specific laws and guidelines for Workers’ Compensation requirements. To get you started, you could review this directory for a list of resources.
Potential Risk Examples:
- One of your employees is packing a delivery truck at your business and a heavy box falls on them injuring their leg causing them to seek medical treatment and days off of work to heal.
- Chemical fumes from a product you sell leaks into your office and causes one of your employees to become ill and seek medical attention.
- An employee operating heavy machinery trips and sustains head trauma causing them to seek medical attention.
Be sure to get Workers’ Compensation Insurance to meet your state’s laws and protect your business and employees from work-related injuries or illnesses.
Business Personal Property/Inventory
This type of insurance covers property owned by your business—which could include inventory, furniture, electronics (e.g., computers), machinery, and office supplies—if they are damaged, stolen, or destroyed. You may want to consider this type of coverage to protect the property you use to conduct business and the inventory that you have on hand.
Did You Know?
You should make a proper inventory of your business property to track such items. If you file a claim under this coverage, having an accurate and updated inventory will make this process much more efficient. You can save time and headaches down the road since your insurance carrier will ask you for this information in the event of a claim.
In some cases, business insurance is tax deductible Check out the Deducting Business Expenses on the IRS website for more details.
Potential Risk Examples
- A fire causes damage to your office and warehouse and your furniture, computer system and inventory are damaged.
- A lightning strike hits your building and zaps your electrical equipment.
- A HVAC unit or plumbing pipe causes water damage to your inventory and/or furnishings.
- A thief breaks in and steals your laptops and some of your valuable inventory, as long as theft coverage is included, this could be a type of loss your business experiences.
Product Recall Insurance
This type of insurance is designed to cover expenses related to the recalling, or withdrawal, of a product from the market. It could cover costs associated with customer notification, product disposal, or shipping. Typically this type of coverage is purchased by manufacturers, importers and distributors. Of course, no business owner plans for incidents to occur that cause a recall of their products. However, this coverage can help provide peace of mind and resources to respond to such an event.
Potential Risk Examples:
- Your decorative basket loses its structural integrity and the bottom falls out causing contents to fall and injure individuals. It is determined there are multiple cases that require you to recall your product.
- The dye in your slap bracelets causes a sizable number of allergic reactions by users and you are forced to recall your products.
- If you manufacture decorative cookies and chocolates and it is determined one of your batches is contaminated and they must be recalled.
Where Can I get Insurance
Hopefully by now you have a greater understanding of the risks you face, the needed coverage to become an Amazon seller, and the details about different coverages that can protect you as a business owner.
The next step is obtaining the needed coverage for your Amazon business. You might ask where the best place to get insurance is or how you compare insurance. As a general rule you’ll want to get insurance from a company that:
- Works with A + rated carriers
- Has experienced, licensed agents to help you address your specific needs
- Can get you a quote in a timely manner
- Has provided thousands of customers with the needed Product Liability, General Liability, and Excess Liability Insurance required by Amazon as well as other important coverages that you may need to be fully protected
There are many insurance providers out there and it can be time consuming to research and compare them against each other. Using the criteria above will be a good start, but you don’t have to search far to find an insurance agency that provides all of these. Protect yourself today with coverage from Insurance Canopy. If you sell online, your business could be at risk. However, take comfort because you don’t have to face all of that risk alone.
Take comfort because you don’t have to face all of that risk alone.
Insurance Canopy has provided thousands of policies to Amazon sellers like you. We also offer a variety of insurance coverages based on specific industry needs like General and Product Liability Insurance, Product Recall Insurance, Property Insurance and much more. Enjoy A + rated insurance from the best carriers in the nation and work with experienced, licensed agents that can provide you with a no obligation quote within 48 hours. Some of their products are also available to purchase online within minutes.
Learn more about and other coverages from Insurance Canopy today.
*The contents quoted from this document were listed as of February 23, 2021. These terms and conditions may be subject to change per Amazon’s discretion. Staff at Insurance Canopy will do their best to update this document as requirements change. However, it is your responsibility to adequately review Amazon’s documentation at the time or if you sign up to become a seller with them to fully understand you meet their requirements (including their insurance coverage requirements).