Table of Contents
If you run a business and you design, produce or supply products, you should consider taking out product liability insurance.
This is a type of business insurance which can protect you against the cost of legal fees and compensation if one of your products or its packaging causes injury or property damage.
If you already know that your business would benefit from product liability cover, then try using NerdWallet’s business insurance comparison tool to get a speedy, bespoke quote for your firm.
Otherwise, read on to learn more about product liability insurance and how it could protect your business.
What is product liability insurance?
Product liability insurance is a type of business insurance which is often sold together with public liability insurance.
Both kinds of business insurance will cover your firm against claims of injury or property damage.
The key difference is that where public liability insurance covers claims relating to your business operations, product liability insurance specifically covers claims relating to any products you design, sell, supply, repair, alter or manufacture.
Say your business is involved with a product which is later found to be faulty – for example, a kettle which scalds someone, or an electronic device which catches fire. Or say you sell ready meals and a customer gets food poisoning after eating a dodgy dinner made with contaminated ingredients.
In all of those examples, if anyone is injured or if anyone’s property is damaged as a result of a product connected to your business, your firm could be sued for damages.
That could be the case regardless of whether your business sold or manufactured the product. Simply put, if you were involved at any point in the product’s supply chain, blame could be levelled at your firm.
That’s where product liability insurance comes in. This type of insurance can cover the cost of compensation and legal costs arising from injuries to members of the public or property damage as a result of a faulty product.
Is product liability insurance a legal requirement?
There’s no law which states that your business must have product liability insurance – although you should know that you are legally obliged to ensure that any products you sell – including food – are safe for customers to use.
However, just because it’s not a legal requirement, that doesn’t mean that your business can afford to ignore product liability cover. It could protect your business and give you some peace of mind… and some third parties might require you to have it anyway.
It may be the case, for example, that other businesses in your supply chain insist you have product liability insurance in place before they agree to work with you.
And similarly, if you want to sell your products at markets, craft fairs or public events, the organisers might state that you need product liability insurance before you’re allowed to pitch up.
What does product liability insurance cover?
Product liability insurance kicks in if a member of the public is injured or someone’s property is damaged as a result of a faulty product connected to your business.
The injured party might choose to sue your business, potentially forcing you to pay damages – or compensation – if your business is found to be liable.
You don’t have to have manufactured the product to be potentially liable. If your business sits anywhere in the product’s supply chain – from design to sales – then your firm could face legal action.
Product liability insurance will cover your business against the legal and compensation costs arising from injury or damage which comes about because of a product or its packaging.
Product liability claims could also come about because of defects, failure to adhere to UK standards or contamination (in the case of food).
In all these scenarios, product liability insurance could save your business from having to bear the costs of legal action against your firm.
Who needs product liability insurance?
As a general rule, if your business is involved at any point in the life cycle or supply chain of a product, then you could be liable in the event that a product fault causes damage or injury.
For example, if you own a shop and you unknowingly sell a faulty product, you could be liable – just as you could be liable if you were the one who supplied the product. The same goes for the business which made the product in the first place.
If you are involved in the design, alteration or repair of a product, you could also be liable if a faulty product hurts someone or damages someone’s property. Likewise if you sell a second-hand product.
In all of these cases, product liability insurance could protect your business. So rather than asking yourself whether you need product liability insurance, it might help to consider whether your business could afford the damages and legal fees associated with a court battle.
Broadly speaking, if your business operates in any of the following industries, then you might sleep a bit more soundly at night knowing you have product liability insurance:
- Retail
- Technology
- Servicing
- Installation
Note that this list is not exhaustive and that it’s up to you, as the business owner, to determine whether you need product liability cover or not.
How much product liability cover do I need?
When you take out product liability insurance for your business, you’ll only be covered up to a certain amount – usually somewhere between £1m and £5m.
In the event that you need it, your policy will kick in to help you defend and settle legal claims. Your insurance will cover a pre-agreed amount of legal fees and compensation costs (for things like replacing damaged possessions as well as lost earnings and medical bills for any injured parties).
The more cover you want, the more expensive your policy is likely to be. Only you can decide what level of product liability cover you need for your business.
When deciding on a policy, think about the size of your business, the nature of the products you deal with, the cost of any potential compensation and the level of risk to which your business is exposed.
If you only provide services – say, as a tradesperson – then it may be the case that your business doesn’t need product liability insurance.
In that case, consider whether you’d instead benefit from taking out another type of business insurance instead – like professional indemnity cover, which is designed for businesses which provide advice or expert services.
How much does product liability insurance cost?
The cost of product liability insurance may vary from one business to another, and any quotes are likely to be influenced by a range of factors, including the level of cover you need for your business.
The cost of product liability insurance will also depend on:
- the claims history of your business.
- the size of your business.
- the nature of your business.
- the level of risk to which your business is likely to be exposed.
Product liability insurance often comes packaged together with public liability insurance. In this case, cover could start from around £5 per month.
Of course, the only way to know for sure how much an insurance policy will cost your business is to get a bespoke quote – taking into account the specifics of your business and your circumstances.
If you are ready to protect your business with product liability insurance, then simply enter a few details into our business insurance comparison tool and you could get a personalised quote in under five minutes.
Image source: Getty Images
About the Author
DIVE EVEN DEEPER
Employers’ Liability Insurance: Everything You Need to Know
by Duncan Ferris
Professional Indemnity Insurance Explained
by Amy Knight