What is product liability insurance?

Product liability insurance is coverage that protects companies if the products they manufacture or sell inadvertently result in harm to consumers. If consumers are harmed by faulty or poorly designed products, they may seek to sue the producer for damages. This can result in expensive payouts if the courts award in a consumer’s favor; even if producers win, they still must spend money on a legal defense.

Product liability insurance reduces the risk of these expenses by paying for defense fees and claims costs. Instead of facing thousands or even millions of dollars from a single court case, businesses only have to pay a monthly premium.

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When do I need to be aware of product liability insurance?

Product liability insurance should be discussed any time there’s a risk of harm to consumers, even if your company has made every effort to ensure the safety of its products. For example, if you purchase parts or materials from a third party, your products may fall victim to defects from a faulty batch. If you’ve created a new item, such as an innovative tool or toy, there’s also the risk of misuse or unintended features.

What is important to know about product liability insurance?

Understanding your product liability insurance is essential to keeping your business protected; there are many different forms of liability and product coverage is limited in scope. As you research the best plan, you should keep the following in mind:

This type of insurance only covers consumers who are harmed by using your products, not employees who are hurt during their manufacture.
Product liability insurance specifically covers the costs of lawsuits, not the cost of recalling products.
Insurance for product liability is incredibly versatile and can cover a variety of scenarios, such as harm caused by allergic reactions, inadequate warning labels, suffocation hazards, and design defects.
Product liability insurance is often purchased with a commercial general liability policy, but can also be purchased as stand-alone coverage.