Product Liability Insurance Vs General Liability Insurance
Businesses large and small, start-ups and established, all have one thing in common: they need insurance to protect their investment from claims they become legally liable for.
Understanding how each type protects your business is imperative to select the best insurance for your business.
What Is The Difference Between Product Liability Insurance Vs General Liability Insurance?
Two key types are product liability insurance and general liability insurance. While these can be purchased in a combined policy or as a stand-alone policy, it is important to explore the distinction between product liability insurance vs general liability insurance.
Product Liability Insurance
Product liability insurance is specific coverage for the products your business manufactures, private labels, or imports. This will respond to claims by third parties of injury, property damage, or illness made against your company because of your product. The benefits include payments of medical expenses, defense costs, and other damages that your company becomes legally liable for paying.
Some common product liability insurance claims are:
Mislabeling
Tampering or adulteration
It is an unfortunate fact that people with mal intent may tamper with your product after it is out of your control, such as during shipment or even when it is on a retailer’s shelf.
Faulty Product
Even the best products can fail regardless of the amount of testing and design put into making them. Lithium-ion batteries which are in nearly all our favorite tech devices have been known to overheat and cause fires or explosions. The property damage can be expensive and potentially include multiple claimants, costing businesses thousands of dollars to remedy the incurred losses.
General Liability Insurance
As a business owner, you have likely been asked by a distributor or retailer who is selling your product to provide proof that your business is covered by general liability insurance. However, you may not entirely know what general liability vs product liability insurance covers or how it protects your company.
General liability insurance is made up of multiple coverage sections. These are:
Coverage A: Bodily Injury and Property Damage Liability
- Premises Coverage: The occurrence takes place on the insured's designated premises
- Operations Coverage: Operations of the insured away from the premise, while those operations are being performed
- Products Coverage:An occurrence away from the insured premise and arising from the insured's product
- Completed Operations Coverage: The occurrence is caused by work or operations the insured has completed
Coverage B: Personal and Advertising Injury Liability
- Financial and emotional injury resulting from trademark infringement, plagiarism, or defamation are most often triggered by your advertising or marketing
Coverage C: Medical Payments Liability
- Considered a “no-fault” or goodwill payment for first aid, medical expenses, and similar when the injury occurs accidentally and on your premise or due to your operations
Damage to Rented Premises
- Also called “Fire Damage Legal Liability” or “Fire Legal Liability”
- Covers fire damage to premises rented to the insured or temporarily occupied by the insured
Do You Need Product Liability If You Already Have General Liability?
You may wonder if your company needs product liability insurance if you have general liability insurance. Many general liability policies have exclusions or restrictions on the products that are covered. This is why it is imperative to read and understand your policy.
When reviewing your general liability policy, pay close attention to any added forms with exclusions. An insurance company can limit coverage to specific products or exclude product coverage entirely if they are not comfortable with the products you manufacture, distribute, import, or sell.
Purchasing general liability insurance vs product liability insurance from a company that specializes in the coverage you need and can also offer some additional coverage that may not be available from a company offering a combined policy.
Additional coverage to consider with product liability insurance:
- Product Recall: Covers losses to both you and your customers when it becomes necessary to recall a product. This can include the cost to recall the product, and loss of income to your customers because of the recall
- Product Withdrawal: This strictly covers a business's cost to take its product out of the market
- Worldwide Territory Coverage: The coverage territory of most general liability and product liability insurance policies is the US and Canada. A worldwide territory endorsement can expand that coverage to anywhere in the world your products are sold
How Much Product Liability Insurance Do You Need?
There are some important factors to consider in determining the amount of product liability insurance to purchase.
- Risk Category: Products are often categorized into three risk profiles: low, medium, or high. The risk category is based on the type of product and what it is intended for. For instance, paper goods would be low risk whereas safety products for sports are high risk. The higher your product risk category, the higher limits of insurance should be considered
- Gross Sales: Your sales are indicative of the exposure your product has in the market. The higher your gross sales are the more likely you are to be subject to a claim or lawsuit
- Worldwide Territory Coverage: Standard limits on a product policy are $1,000,000 each occurrence and $2,000,000 aggregate. But higher limits are available or you may purchase excess liability insurance to extend the standard limits of your policy
There are a number of complexities to determining the correct insurance for your business. At Insurance Canopy, we have over a decade of experience in product liability insurance. Find out more here or contact one of our licensed agents to purchase your product liability insurance.
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