What is product liability insurance?

Whether you run a large or small business, you probably can’t afford to pay huge sums in compensation if a product you’ve sold harms a person or damages their property. But with the right product liability insurance in place, you won’t have this worry. It will pay for most of the costs of compensation and often the legal fees too.

What is product liability insurance?

This type of business insurance covers the cost of paying compensation to someone if your product causes an injury, illness or property damage. Even if you haven’t manufactured the product itself, the person may still be able to raise a claim against you if you supplied it or repaired it.

It’s different from public liability insurance in that it covers for claims made specifically about products you sell, rather than accidents that happen to consumers in your workplace or in the course of your work. Another type of cover that’s often linked to public liability insurance is professional indemnity insurance, which covers for losses caused by mistakes when giving advice.

What does product liability insurance cover?

Product liability insurance covers most of the cost of compensation and legal fees for claims against products that cause injury, illness, death or property damage. Here are some examples of the kind of problems someone could raise a claim against:

• Food – a consumable item makes someone unwell
• Faulty – the product has a manufacturing fault
• Design – the product is poorly designed
• Marketing – any safety measures, like allergens and usage guides, aren’t labelled correctly

It’s worth noting that with public liability insurance, you can take out a policy that lasts for just one day (e.g. if you are holding a special event that might expose the public to more risk). You can’t usually do this with product liability cover, because if the product caused an issue in a few days’, months’ or even years’ time, you wouldn’t be covered.

Who needs product liability insurance?

You need product liability insurance if you sell or make products, even if your business is more of a hobby. If you fall into one of the categories below, you could be liable to pay compensation:

• You’re the manufacturer – you make the product and sell it directly to customers or to suppliers, making you liable
• It’s branded to you – even if you haven’t manufactured the product, you could be liable if it has your company name and logo on it
• You’re the repairer – your repairs could cause further damage or injuries, and you would be liable for this
• The manufacturer is unknown or has stopped trading – if the manufacturer can’t be traced or is no longer trading, you would become liable if you supplied the goods
• You import goods from outside the EU – the business might not be subject to consumer laws, so the authorities could look to you for compensation

How much does product liability insurance cost?

You could pay less than £10 a month for product liability insurance, especially if you run a small business, but you should expect to pay more if you run a higher-risk company. For example, caterers for large events would carry a higher risk of making someone ill than a one-person company that sells knitwear online (unless they accuse you of pulling the wool over their eyes).

The following factors will affect your exposure to risk and, therefore, the cost of your premiums:

• Type of product – electrical, sharp, heavy, medicinal and some perishable products carry a high risk of causing injury, illness or damage, while products needing complex repairs are more likely to go wrong than simple ones
• Your revenue – the amount of money you make from selling goods will indicate the number of customers you have who could be impacted
• Safety measures – having good product safety measures in place may help to reduce your premiums

You’ll also need to decide the level of cover you need. Most policies start at about £1 million and offer cover up to £10 million. You may want to get other policies too, such as professional indemnity, employers’ liability, public liability, cyber and business property insurances. It can work out more cost-effective to bundle them with a commercial combined insurance policy. An independent financial adviser (IFA) can take you through the policies and level of cover you need, as well as doing the legwork to find the best quotes.

Product liability insurance is tax deductible as it’s considered a necessary business expense.

How to take out product liability insurance

Lots of providers offer product liability insurance. You can compare like-for-like quotes and apply for policies online or go through a broker to find more specialist cover. As with any insurance, it’s essential to make sure all the risks that apply to you and your business are covered.