Updated 22 June 2022
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.
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.
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:
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.
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 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:
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.
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.