What is product liability insurance?

If you sell, make, or distribute products, you likely need this policy.

If that product allegedly hurts someone or damages their property, product liability coverage will help pay your legal fees, judgment, or settlement. Anyone can sue over damage from a product, even if they didn’t buy it or use it.

A product liability policy is also crucial for construction and contracting businesses. It offers financial protection when a client sues over a personal injury or property damage related to your completed work.

Read more about product liability insurance coverage.

Yes, for several reasons.

First, your business might be unaware it sold a defective product. Anyone involved in a product’s supply chain can face a lawsuit if that product causes harm or financial losses.

Second, a customer might also claim your business provided insufficient warnings or inaccurate instructions. If they get injured using your product incorrectly, they could blame your company.

Finally, a customer could sue because they’re unhappy with your product. Even when a lawsuit is frivolous, your small business still needs to pay for a legal defense.

Insurance companies usually include product liability insurance with a general liability policy. This is typically called products-completed operations coverage. “Products” refers to the items you make or sell. “Completed operations” refers to completed work.

But some retailers or manufacturers may need to buy this coverage outside of their general liability policy.

Check with your agent to make sure your general liability policy includes this coverage. When you purchase a policy, you’ll get a certificate of liability insurance as proof of insurance.

Though they are often purchased together, these two policies are not the same.

General liability insurance provides coverage against the most common small business claims. It covers accidental damages, such as a customer slipping in a puddle at your shop and breaking an arm (or their phone). It also helps pay for lawsuits that claim you damaged a competitor’s reputation or copied their logo.

Product liability insurance covers damages related to your products or completed services. That’s why manufacturers, retailers, and contractors need both types of coverage.

Ask your insurance agent what you need to protect your business. For example, adding product recall insurance to your general liability policy will cover the potential costs of a recall.

The cost of product liability insurance is usually included in your general liability insurance premiums. General liability costs are based mostly on your profession’s risks and factors like the policy limits you choose.

Manufacturers face higher risks and may end up paying more for this insurance policy.

Product liability insurance is not designed for software, applications, and similar IT and technical products. Tech business owners should opt for an errors and omissions insurance (E&O) policy to protect against coding mistakes and software errors.

Product liability insurance covers lawsuits over physical harm caused by a product. For example, it would provide coverage if your software caused a battery to explode and injure someone.