Matt Hands, VP, Insurance and MoneySense
Product liability insurance, or product risk insurance, is a type of commercial insurance policy that covers you if you’re held liable for a product you manufacture, distribute, or sell. If your product causes a third party (someone unrelated to your business) to injure themselves or damages their property, you could face expenses for legal fees and compensatory damages. Having a product liability insurance policy, however, can cover these costs and get your business back on track as soon as possible.
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If your business provides a product to your customers, consider adding product liability insurance to your commercial policy. You wouldn’t one claim to shut down your business operations completely, so it’s always a good idea to stay a few steps ahead financially.
Example 1: A food poisoning incident at your restaurant may cause several customers to sue. Product liability insurance can help cover the expensive legal costs and damages you may incur.
Example 2: The sweater your business manufactures uses a type wool causing rashes on your customer's skin. This results in a costly lawsuit, but your product liability insurance can cover the legal and damage fees.
Businesses that should consider product liability insurance include:
- Restaurants, coffee shops, and bakeries
- Clothing stores
- Pet stores
- Gift shops
- Specialty food stores
- Cosmetic, skin care, body care, and hair care shops
- Wholesalers, manufacturers, and suppliers
- Software developers and web designers
Even if you run a small e-commerce business from your home, product liability insurance might be worth it. A common misconception is that small businesses don’t need business insurance because the likelihood of a lawsuit isn’t as probable with fewer customers. If someone sues you due to an allergic reaction from your homemade soap, you’ll rest easier knowing you have product liability insurance.
The product's design is faulty or unsafe before it's even put together (e.g. toxic materials chosen).
How much does product liability insurance cost?
The cost of product liability insurance will vary according to a few factors, but you can expect to pay about $0.25 for every $100 your company makes in sales. So if you sell $100,000 worth of products each year, product liability insurance will cost you about $250 annually.compare quotes
The type of product your business sells, manufactures, or distributes has an impact on your product liability insurance quote because different products present different levels of risk. A bookstore, for example, could technically be held liable for a paper cut – although it’s highly unlikely. On the other hand, a skin care manufacturer faces numerous product risks, from chemical burns to allergic reactions, ultimately resulting in a higher cost for product liability insurance.
Quantity of products sold
Depending on how successful your business is, you could be selling many more products than your competitors. This does, however, result in a higher cost for product liability insurance because there is a higher chance a customer could hold you liable for your product. For instance, a coffee shop that serves a few regulars each day probably won’t have too many legal issues, even if the milk was spoiled and caused food poisoning. However, if the same thing happened to your restaurant that receives hundreds of customers each day, there’s a higher chance a customer will speak up and file a claim.
Your business revenue is also factored into the cost of your product liability insurance. A third party could claim more in damages if they know your business revenue is high enough for the pay-out. For example, a small start-up won’t have as much at stake in a legal battle in comparison to a well-known, successful company if a product turns out to be faulty. Therefore, the more money you make, the more you’ll likely have to pay for your product liability insurance premium.
Past business insurance claims
Insurers often look at any claims you’ve made in the past for your business to determine the likelihood of a claim in the future. If you’ve been known to mislabel the materials on your clothes, it’s quite likely it’ll happen again. So with a clean history comes cheap product liability insurance, but a not-so-clean history – that will raise your insurance quote.
Is product liability covered under general liability?
How do I get product liability insurance in Canada?
Does product liability insurance cover you internationally?
Is product liability insurance mandatory?
Does product liability insurance cover services?
Matt Hands, Business Director of Insurance
With 6+ years of experience at Ratehub.ca, Matt’s focus has been on growing its newest business unit, Insurance. He is a thought leader and a valuable resource to respected publications across Canada. read full bio
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