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Product Liability Insurance

Jason Metz

Product liability insurance covers a business for lawsuits if its products cause injury, illness or property damage -- even if the customer uses the product incorrectly. The average cost for a product liability claim is $35,000, according to a study done by The Hartford.

If your business does one of the following, consider product liability insurance:

  • Designs a product.
  • Manufactures a product.
  • Distributes a physical product.
  • Sells a physical product.
  • Repairs a product.

What does product liability insurance cover?

Product liability insurance can cover damage that may have been caused by your product, including:

  • Court costs from a lawsuit.
  • Injury claims associated with a lawsuit.
  • Property damage caused by a product.

No matter where your business falls in the lifespan of a product, from design to manufacturing to sales, it could be at risk for a liability claim. It's a good idea to consider the following:

  • Your business's role in the product. Your business may only play a limited role, such as providing a small part for a larger product, but it could still be held liable for product problems. Whether a business is part of product design, manufacturing, assembly or packaging, you may need to defend yourself against a product liability lawsuit.
  • How your business communicates about a product. Inadequate or bad instructions, insufficient warning labels and flawed marketing can expose a business to liability. For example, if machinery displays warnings only in the operator's manual but not on the actual machine, a business could be held liable for injuries.
  • If your business has partners, affiliates or investors. Partner or affiliate companies might require you to have product liability insurance for their own protection. For example, a retail store might not sell your product unless you have coverage. Investors may want to know you have sufficient coverage before they provide financial backing.

How much coverage you'll want to buy, as well as the cost, will depend on several factors, such as:

  • The type of product.
  • The amount of product manufactured.
  • The number of parties involved in production.
  • The amount of product sold.
  • The size of your business.
  • Your business's claims history.

A business insurance agent can help you identify the right coverage amounts.