Guide to Product Liability Insurance

By Olivia Johnson - Trusted UK Business Expert

Last Updated 2nd of December 2024

3 minute read

If your business makes, sells, or supplies products, you need to know about product liability insurance. It protects you when something goes wrong with the products you sell. We’ll walk you through everything, so you can safeguard your business against costly claims.

Product liability insurance covers businesses if their products cause harm or injury to customers. It helps cover legal costs, compensation claims, and other expenses if a product you sell, make, or distribute leads to damage or injury.

Want to know how product liability insurance works and why it’s important for your business? Keep reading to find out more about what it covers and how it can protect your company from unexpected claims.

What Is Product Liability Insurance?

Product liability insurance is designed to protect businesses that are involved in the production, supply, or sale of goods. If one of your products causes harm to a customer or damages their property, this insurance can help cover the costs of legal claims and compensation. Even if your business only distributes or sells the product, you can still be held responsible if it’s found to be faulty.

No matter how careful you are, accidents can happen. A product could have a manufacturing defect, a design flaw, or a misleading label that causes injury or damage. Without product liability insurance, you’d have to cover these costs out of your own pocket, which can be expensive and damaging to your business.

Product liability insurance typically covers:

• Injuries caused by your products: If a customer gets hurt because of something you sell, you’re covered.
• Damage to property: If your product damages someone’s property, the insurance helps cover the costs.
• Legal costs: If a claim is made against your business, this insurance covers the costs of defending your case in court.

How Does Product Liability Insurance Work?

When you have product liability insurance, you pay regular premiums to the insurance company. In exchange, they cover the costs if someone makes a claim against your business. Here’s how it works:

• Claim is made: If a customer believes they were harmed by your product, they may file a claim against your business.
• Insurance investigation: Your insurance company will investigate the claim to determine if your product was responsible.
• Coverage kicks in: If the claim is valid, the insurance will cover legal fees, compensation payments, and other related costs.

It’s important to note that product liability insurance only covers claims related to the product itself. For example, if a customer misuses the product in a way that leads to injury, the insurance might not cover the claim. Always make sure your products come with clear instructions to minimise risks.

Why Is Product Liability Insurance Important?

Product liability insurance is essential for businesses that handle physical goods. Even if your products go through strict quality checks, there’s always the chance that something could go wrong. Here are a few reasons why this insurance is crucial:

• Protects against costly claims: If a product causes injury or damage, the costs of legal claims and compensation can be high. Product liability insurance ensures that these costs don’t fall entirely on your business.
• Mandatory for some industries: In certain sectors, having product liability insurance is required by law or business agreements.
• Builds customer trust: Having insurance shows your customers that you take their safety seriously. It can also improve your reputation and give clients more confidence in your products.

What Isn’t Covered by Product Liability Insurance?

While product liability insurance covers many risks, there are some things it generally doesn’t include:

• Product recall costs: If you need to recall a faulty product, the insurance usually won’t cover the cost of removing it from the market.
• Warranties or guarantees: Claims related to a product’s performance or failure to meet specific expectations aren’t typically covered.
• Intentional harm: If your product causes damage or injury due to deliberate misconduct, the insurance will not provide coverage.

To ensure you’re fully protected, you might consider adding additional coverage, such as product recall insurance.

FAQ

Who needs product liability insurance?

Any business that manufactures, sells, or distributes physical goods should consider product liability insurance. It protects you from claims if your product causes harm.

What does product liability insurance cover?

It covers claims related to injuries or damage caused by your product, including legal fees and compensation payments.

Is product liability insurance required by law?

In some industries, product liability insurance may be required. Even if it’s not legally necessary, it’s a smart investment for businesses that handle physical goods.

What if a customer misuses the product?

If a customer uses the product in a way it wasn’t intended, and it leads to harm, the insurance may not cover the claim. That’s why it’s important to provide clear instructions and warnings.

How much does product liability insurance cost?

The cost depends on your business size, the types of products you sell, and the risks involved. You can get a free quote to find out the price for your business.

This post provides a comprehensive overview of product liability insurance, why it’s essential, and what it covers. It also includes practical tips for business owners looking to protect their company from product-related risks.