What Is Product Liability Insurance?
Product liability insurance protects a company against financial losses due to those supplying a product. Product liability insurance will cover expenses that may arise due to product defects, faulty packaging instructions, or an injury sustained by the consumer using the product.
What Is Product Liability Insurance?
A company can be liable due to negligence for damages caused by its products. Product liability insurance covers lawsuits and claim settlements for personal injury cases like defective products, where someone was injured through no fault of their own because of a defect in your product or service.
Businesses are responsible for protecting themselves from financial losses that may result from product liability claims. Suppose a product manufacturer, distributor or retailer is issued for a defective design, improper instructions or failure to warn consumers about inherent dangers in their products.
In that case, these companies may be forced to pay significant damages to injured victims or the families of those who have died due to product defects. Product liability insurance can help cover the cost of repairing or replacing products that may cause injury or damage to others and cover the legal fees associated with defending oneself in a lawsuit.
Insurance is available to protect businesses from claims arising out of product liability.
However, there are several exclusions, including:
- The failure to provide adequate warnings and instructions
- The design, manufacture or distribution of inherently dangerous products
- Fraud, intentional acts or criminal negligence
- The unauthorized use of a product by someone other than the purchaser or by someone not intended to use it
Product liability insurance protects companies from liability for product defects, including:
- Dangers posed by pharmaceutical drugs
- Defects in food products
- Defects in electronic equipment, such as televisions and cell phones
- Defects in cars, buses and trucks
- Injuries caused by faulty medical devices, such as defective pacemakers
- Defects in children’s toys
- Defects in construction products, such as building materials or tools
- Defects in recreational sports equipment, such as skis and bicycles
- Defects in medical devices such as surgical instruments used during medical procedures
- Defects in light fixtures, such as those found in warehouses or factories
How Does Product Liability Insurance Work?
Product liability insurance is an insurance policy that covers individuals and businesses from damages, lawsuits or criminal charges that may arise from the sale and use of a business’s products. Each type of product liability insurance has different coverage options.
There are three types of product liability insurance:
- Third-Party Coverage: Third-Party Coverage is a broad category that includes almost every form of protection products liability insurance can offer a business. It is the most common type of insurance.
- First-Party Coverage: First-Party Coverage protects the manufacturer from claims against the consumer who bought their product. It is less common but still available.
- Standalone Product Liability Insurance: Standalone Product Liability Insurance protects a business that manufactures or sells a specific type of product, like drug manufacturers or makers of electrical products and tools.
Typically, when a product causes harm to someone, the victim can file a lawsuit and the product’s manufacturer will be named a defendant. This liability will be based on the damages caused to the victim, including physical and non-physical injuries. The victim can file a lawsuit and claim damages based on the physical harm they have suffered.
It could include pain and suffering, loss of employment, etc. The victim can also file a lawsuit against the manufacturer for compensation for non-physical harm. To protect themselves, the manufacturer can purchase liability insurance to pay for any losses that occur due to claims against them.
How to Get Product Liability Insurance
The cost of insurance depends on your exact needs and exposures and where in the country you are located. Speak with a qualified underwriter about what types of coverage are needed for your business’s specific needs.
What Is Product Liability Insurance? To Conclude
Businesses that do not have insurance and are forced to defend themselves in a lawsuit will likely be responsible for the legal costs and other expenses related to keeping their company intact. Businesses can save money by purchasing insurance in advance before they are required to make payments. Additionally, businesses with poor financial history or located in areas with a higher rate of crime or civil litigation may face higher premiums.
Find out more about the importance of insurance here.
Other useful links about Business Insurance:
Is Professional Indemnity Insurance a Legal Requirement?
How Much Product Liability Insurance Do I Need?
Is Employers’ Liability Insurance a Legal Requirement?

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