How Business Liability Insurance Works for Product Liability


If you operate a small business, you know how important it is to handle everything with importance and to offer the best in quality and service. But you also know that no matter how hard you try to provide the best, customers can still claim that you’re at fault in a situation (even if you’re not).

Nearly 80% of companies in the US are set up as a sole proprietorship or as a partnership. This kind of structure generally sets up a small business owner with a lot of risk both in the company and personally.

Business liability insurance covers your assets both business and personnel from damage through lawsuits.

In the case of a lawsuit filed for individual or property damage, this type of insurance covers legal fees and damages. Business liability is a big problem for most small businesses, because they don’t understand it, and they don’t really know the risk of not having it.

Having a general liability policy is the rule of thumb it provides protection against things across the board, such as accusations and lawsuits against you for false marketing to injury claims and damages to property. Many companies who invest in liability insurance choose only this type of policy.

If, however, a business is selling products, product liability insurance is key. A suit brought against a small business based on personal injury or property damage resulting from a defective product can easily put a business out for good.

product liability insurance protects a business from that danger by covering the expenses in those situations.

The cost of a product liability policy varies. If the product you sell is low-risk (like bookmarks) then your policy would be much more inexpensive than a policy for a company that sells something that could feasibly harm people, such as curling irons or flat irons, which involve high heats close to a person’s body.

The most important thing is to evaluate the matter seriously, as you would anything else in your business, and check the options available that can help minimize your risk.

The first type of product liability insurance coverage involves a production flaw, which means that during the manufacturing process there was a flaw which can turn up later and injure someone.

If you sell this product as a retailer you can still be held liable. A design defect will be covered by product liability insurance as well.

A design defect did not happen during the manufacturing process but the party or parties that designed the product did not see that the product will eventually fail. Poorly labeling of a product could get you hauled into court.

An example of this is the label on motorcycles warning that this product, if not used properly, can injure and kill.

Your business is too valuable and you worked too hard to build it up and then lose it in a court suit. Pay the extra money for product liability insurance and sleep better at night.

Frequently Asked Questions (FAQ)

  1. Why is business liability insurance essential for small businesses?
    Business liability insurance safeguards small businesses from financial strain caused by legal disputes and damages. It protects both business and personal assets, offering a safety net against unforeseen challenges.
  2. What is the difference between general liability and product liability insurance?
    General liability insurance covers a broad spectrum of claims, including false marketing accusations and property damage. On the other hand, product liability insurance specifically addresses damages resulting from defective products.
  3. How is the cost of product liability insurance determined?
    The cost varies based on factors like the product’s risk level. Lower-risk products generally have lower premiums compared to items that could potentially cause harm.
  4. Can retailers be held liable for product defects?
    Yes, retailers can be held liable for product defects even if they are not the manufacturers. This is why product liability insurance is important for retailers as well.
  5. How does design defect coverage work?
    Design defects encompass issues that stem from the product’s design, rather than manufacturing flaws. Product liability insurance covers expenses related to design defects and their potential consequences.
  6. Is product liability insurance only for businesses selling physical products?
    Yes, product liability insurance is primarily designed for businesses that sell physical products. It offers protection against claims arising from the use or malfunction of these products.
  7. How can I choose the right liability insurance for my business?
    Evaluate your business’s specific needs, risks, and budget constraints. Consulting with insurance professionals can help you choose the most suitable coverage for your circumstances.
  8. What steps can I take to reduce the risks associated with liability claims?
    Aside from having appropriate insurance coverage, focus on quality control, accurate labeling, and clear instructions for product use. Regularly reviewing and improving your business practices can minimize potential risks.

In conclusion, business liability insurance is an indispensable tool for protecting your small business against legal challenges and financial strains caused by lawsuits and damages. Whether it’s general liability insurance for comprehensive coverage or product liability insurance tailored to your specific products, understanding these options and their benefits is crucial for sustaining your business’s growth and success.

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