According to a report published by the Insurance Information Institute, net premiums written for product liability insurance in 2020 totaled $3,239,063,000. Product liability injury pay-outs averaged $7,416,300 the previous year. Without proper coverage, many small businesses can’t afford such costly claims when found liable for injuries related to defective products. However, having a product liability policy in place can help pay for such claims while protecting your business assets.

The Basics of Product Liability Insurance

This liability policy protects a business accused of selling or making a defective product that causes harm to the consumer. It also covers property damage caused by defective products. The policy covers personal injuries or damage resulting from the following product issues:

• Design flaws
• Manufacture defects
• Inadequate/improper user instructions, labels, or warnings

Does Your Business Need This Liability Coverage?

People who are injured or lose valuable property as a result of a faulty product can file a claim against anyone who is a part of the product’s supply chain. While product liability insurance isn’t mandatory, it’s important to have it if you participate in product-related activities such as:

• Manufacture/production
• Distribution
• Retail/Wholesale
• Repair/modification
• Import

What Is the Cost of Coverage for Your Small Business?

For manufacturers, retailers, and wholesalers with under $1 million in revenue, the annual cost of this coverage is roughly $1,200 on average. However, you may pay higher or lower premiums depending on variables like:

• Type of products you deal in
• Revenue
• Limits on your policy
• Claims history
• Current Market Appetite
• Inflation

Covered Costs

This policy can pay for:

• Defense attorney fees
• Settlements or compensatory damages
• Victim’s hospital bills

Excluded Costs

• Recall costs, which are covered by recall insurance
• Employee injuries, which are covered by workers’ compensation insurance
• Customer injuries on your premises, which are covered by general liability insurance

Coverage Limits

Two types of limits are applicable:

• Occurrence limit: This is the maximum amount your insurer will pay for a single claim (minus your deductible). For example, a limit of $1,000,000 per occurrence means that the insurance company cannot pay anything above this figure when a victim files a claim.

• Aggregate limit: This is the maximum compensation your insurer can pay for multiple claims filed within the policy duration. If your policy’s aggregate limit is $2,000,000, your insurer can only pay a maximum of $2 million regardless of the number of claims filed within the policy period.

As the policyholder, you’re responsible for paying your deductible and any amount above your policy’s coverage limits.

How to Compare Insurance Quotes

To get the best protection and value for money, look at factors such as:

• Premiums
• Coverage limits (higher limits give you more product liability protection)
• Deductibles (a higher deductible means you’ll pay more out of pocket when liable)
• Endorsements & Exclusions

How to Purchase a Product Liability Policy

• Shop around: Find an Agent/Broker that will do this for you. At GrayStone Insurance Group, we shop the insurance through multiple carriers to make sure we get the best coverage at the best price. Going to multiple Agents/Brokers can sometimes work against you in multiple ways.

• Get a BOP or Package Policy: Including product liability coverage in your BOP/Commercial Package insurance may be cheaper than purchasing individual policies.

• Scrutinize coverage benefits: Aim to maximize liability coverage at the lowest cost possible. Don’t choose the cheapest quote if it doesn’t provide the protection you need against business liability claims.

By having product liability coverage, you can protect your small business against costly injury claims or lawsuits. Contact us at GrayStone Insurance Group if you have any questions about commercial insurance policies. We are happy to help protect your business assets with customized coverage!