Get a quote on Product Liability Insurance
The average cost of product liability insurance in the U.S. is $1,192 per year or $99 per month for small businesses. Product liability insurance is a form of general liability insurance meant to protect your business from financial and legal consequences as a result of bodily injury or property damage due to the use of your business’s sold goods or products. Product liability insurance covers the legal and court costs of defending any claims of bodily injury, property damage, or financial losses caused by your product.
Average Cost of Product Liability Insurance
AdvisorSmith determined the average cost of product liability insurance by examining rate quotes for commercial general liability insurance which include coverage for product liability for small businesses with $1 million in revenue and 10 employees. Our study included over 60 business types in the manufacturing, wholesale and retail sectors, and included quotes from admitted insurers around the country. Coverage limits were quoted for $1 million per occurrence / $2 million aggregate, which is one of the most popular coverage options.
The average cost of product liability insurance in the U.S. is $1,192 per year or $99 per month for small businesses. The nature of products sold by businesses has a significant impact on the risk exposures and premiums paid by companies, as our study found a range of premiums as low as $300 per year and as high as $4,494 per year.
Average Cost of Product Liability Insurance by Industry
Among manufacturing businesses, the average premium was $1,146 per year, with a range from $736 to $1,854. Manufacturing businesses with hazardous or high-risk products were excluded from this analysis, as these businesses often receive coverage through excess and surplus insurance companies. Exclusions included manufacturers of children’s products, food manufacturers, technology and electronics manufacturing, medical device manufacturing, and manufacturers with substantial chemical exposures.
Wholesale businesses paid an average premium of $1,159 per year for general liability insurance that included product liability insurance. The range of premiums for wholesale businesses studied ranged between $751 to $2,431.
The average cost of insurance for retail businesses was $1,271 for general liability insurance. Premiums for retail businesses were higher than for wholesalers or manufacturers owing to the fact that general liability also covers retail businesses’ exposure to walk-in customer claims such as slip-and-fall claims, in addition to product liability claims. The range of premiums for retail business was between $300 per year and $4,494 per year.
How does product type affect product liability insurance costs?
One of the most important factors affecting the cost of product liability insurance is the type of product being sold or produced by your business. Products vary widely in terms of their ability to cause property damage or bodily injury to consumers, and the insurance rates paid by businesses will reflect the differences in risks. Companies selling products that are relatively safe, such as wood products, office supplies and stationery, and clothing for adults, will pay the lowest premiums.
Premiums will be higher for products with a higher propensity for injury, including products such as furniture, electronics, fixtures, and bicycles. The highest risk products include food and beverage products, products used by children, and manufactured goods that involve chemical processes.
Additionally, some insurers will charge higher premiums for companies that sell products made in China or Mexico. For some of the highest risk products, companies will need to acquire coverage from excess and surplus insurers, which are specialty insurance companies that specialize in insuring difficult-to-insure risks.
How does business type affect product liability insurance costs?
Product liability insurance covers three main classes of businesses: manufacturers, wholesalers, and retailers. Commonly, product liability is covered under a commercial general liability policy, which also provides coverage for the other liability exposures that a business may face.
For manufacturing businesses, product liability is a key part of the exposures covered under a general liability policy. Since manufacturers typically do not have substantial foot traffic from third parties, there are fewer liability exposures related to third parties that are not related to product liability. For manufacturers, the type of product they sell will be the main driver of the premiums paid by the business.
Wholesale businesses typically have higher third-party exposures than manufacturers, with delivery vendors coming in and out of wholesale facilities. Wholesalers may also be exposed to product liability claims for products that they distribute. Wholesale businesses may become exposed to claims if they are negligent, provide labeling or advice on the use of a product, or assist with installation. Although some manufacturers will provide indemnification for their distributors in their contracts and may also name distributors as additional insureds on their insurance policies, wholesalers may not be fully covered by manufacturers’ insurance policies in some cases.
Retail businesses also face similar product liability exposures as wholesalers face. However, in many retail businesses, the risk from retail operations, such as customers slipping and falling in a retail store, is greater than the risk from product liability claims. For retailers that use a general liability policy to cover their product liability exposure, retail-specific exposures may have more influence on the cost of their insurance than product liability risks.
How do coverage limits affect product liability insurance costs?
A major determinant of premiums is the coverage limits sought by your business. The higher the limits on your liability coverage, the greater the premiums will be. Typically, however, each additional dollar of coverage costs less per dollar of coverage compared with the coverage below it.
For example, a hypothetical general liability policy that includes product liability coverage with a $500,000 limit might cost $794 in annual premium. However, raising the limit to $1 million per year might only raise the premiums to $1,176. Even though the limits have doubled, the premiums did not. For small businesses, a common choice of limit can be $1 million per occurrence / $2 million aggregate.
What are the most common product liability insurance claims?
There are four major types of product liability claims that are encountered by manufacturers, wholesalers, and retailers. These claims include manufacturing defects, design defects, failure to warn or provide appropriate instructions, and breach of warranty.
Manufacturing defects are the simplest type of product defect. In these claims, an injured party claims that there were problems with the way the product was manufactured or assembled. Usually, this means that the product was manufactured in a way that the manufacturer did not design or intend. When a manufacturing defect occurs, it usually only affects some of the items in a product line, rather than every single item in a product line. Manufacturing defects can commonly be caused by low-quality materials or poor workmanship.
Design defects are focused on flaws in the design of a product that make the product hazardous to users of the product. When a product has a design defect, all instances of that product have the same problem. Usually, design defect cases are brought against only the manufacturer or designer of the product, rather than distributors or retailers.
Failures to warn or provide appropriate instructions focus on the failure of a manufacturer or distributor to provide warnings about the inherent risks of a product. Although manufacturers typically don’t need to warn about obvious risks, such as the fact that a knife is sharp and can cause injury, they could be held liable if it is not obvious that a product can cause injury when used as intended.
Breach of warranty claims assert that a manufacturer fails to live up to a warranty that it offers on a product. Warranties usually guarantee that a product will perform in a specific way or live up to a standard. When products do not live up to the guarantees offered by manufacturers, there is a risk of a breach of warranty claim.
Purchasing Product Liability Insurance
There are a few options for securing coverage for product liability, and the choice really comes down to your level of risk exposure. Product liability coverage is available via:
- A general liability insurance policy. There are some basic levels of product liability coverage provided under the products and completed operations portion of a standard general liability policy, and this may be sufficient for those businesses with lower product risk.
- An endorsement to a CGL or business owner’s policy (BOP). Additional product liability coverage may be added to an existing general liability or business owner’s policy.
- A standalone product liability insurance policy. For businesses with a high risk of product liability, it may make sense to purchase a separate policy through an insurer that specializes in product risk.
Below we’ve highlighted a few of our trusted partners who offer product liability coverage in various forms:
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