Launching products, selling them, and ensuring their route through the supply chain is difficult but rewarding work. As someone working within the industry of a product, whether that’s in manufacturing, distribution, or retailing, there are a few things you might not know about. From best business practices to the software you should use to manage your business, there’s a lot you should know.
Today, we’re going to cover one of the most important but often confusing topics that we suggest small businesses look into, product liability insurance. We’ll break down what it is, what it does, how it helps, and why you need it.
Let’s dive right in.
What is Product Liability Insurance?
Product liability insurance is designed to protect businesses against third-party claims that the product you designed, created, or sold caused harm to an individual. This means that if you sold a consumable product that was improperly labeled or created, and someone were to consume it and be harmed, they could sue you and you could be held responsible.
You never really know what can happen to a business and you want to be sure you’re putting in the proper safety net to support you in case things go awry. Unless you think you can pay all lawsuit associated out-of-pocket fees on your own, that is.
Who Needs Product Liability?
If you’re working within the supply chain of a product then you need product liability insurance. As we mentioned above, being within the supply chain means working anywhere from production to distribution. Most small businesses needing product liability tend to do it all and need additional coverage when they reach the point of expandability. If you’re trying to launch a new product then you need product liability. If you’re trying to get a store, whether online or physical, then you need product liability. If you’re deciding to launch an online store, then you need product liability.
How Does it Work?
If you were to be included in a lawsuit resulting from a particular product—no matter if you were the manufacturer, distributor, or retailer of the product—then you’d need to file a claim with your insurance. Think of it like auto insurance in the sense that you contact the insurance company when something bad happens. An agent will likely assist you in the filing process and in most cases you don’t do much else. Without product liability insurance coverage, you’d be scrambling trying to figure out how to deal with a lawsuit on your own. Who would you call first? Do you have a lawyer in your contacts you can pay for yourself? Insurance can help you deal with that all.
What Should a Policy Include?
When looking for product liability insurance coverage, the best insurance companies will offer you coverages we explain below. Don’t be confused about each coverage being different, that’s just for the sake of explanation; most product liability insurance coverage is bundled under general liability insurance with different associated aggregates for each specific.
General Liability Aggregate: General liability insurance covers common lawsuits that arise from your business’ everyday activities. It protects against customer injuries such as slip-and-fall accidents as well as property damage. This aggregate is the most your policy will pay for bodily injury and property damage claims occurring within the policy term.
Products and Completed Operations Aggregate: This is the maximum your policy will pay for bodily injury and property damage claims occurring within the policy term that result from the products you use to perform your services. However, it does not cover your products that are sold or distributed, that’s what the specific product liability coverage is for.
Personal and Advertising Injury: This is the most your policy will pay out or damages that arise out of personal and advertising injuries your business causes someone else.
Damage to Premises Rented to You: This applies to damage to premises rented to you such a fire.
Medical Expense Limit: A medical expense limit on an insurance policy allows you to offer to settle things with an injured customer by paying their medical fees. If someone had an allergic reaction to your product that sent them straight to the ER then this limit could come in handy.
These coverages are just the start of a great policy, but having an idea of what a policy should include will make it easier for you to choose.
When Would Product Liability Insurance Help?
There are many instances in which your policy could respond. The ones typically seen within the product liability industry include…
- Manufacturing Defects: During the production process something happens to your product, such as being tainted with chemicals, and a consumer is sent to the hospital as a result
- Design Issues: The product you’ve created has a design flaw that results in consumer injury; such as a misaligned skateboard being mass produced and breaking upon use, sending the user to the ER
- Improper Labels: Without proper information on your product labels, your products could cause bodily harm to an individual; for example, a consumable you’ve produced doesn’t have the ingredients printed correctly causing a consumer to have an allergic reaction
These are just a few examples of when product liability insurance could help so don’t limit risk to only the examples we mentioned. You could be in control of your product every step of the way and still have something negatively affect a consumer.
But when you carry product liability insurance, the anxiety of something going wrong is replaced by your peace of mind.
What To Look For
Now that you know what your policy should include and hopefully cover, you’re probably wondering how to choose an insurance provider. It’s hard when there’s just so many.
Here are a few things the company you choose should offer:
- A+ rated insurance
- Licensed customer support teams
- Experienced agents within your industry
- Affordable premiums
- The ability to help you with online sales
This, along with offering the coverages you need, will ensure you have the best coverage for your needs.
Preparing for Success
As a small business owner, protecting your assets should be your top priority. Did you know that just one lawsuit could wipe out your business? Lawyers these days cost upwards of $200 an hour, imagine what needing one for a suit would cost in total--it’s enough to make that premium worth it.
With the proper product liability insurance coverage, you’ll have the peace of mind to continue growing your business and branching out into new spaces.