Product liability cost guide

If you’re an entrepreneur making products by hand, you’ll likely need product liability insurance. You may want to prioritize expenses like supplies, employees and materials. However, if you’re not careful, one customers’ claim that a product you made harmed them could send your business into a financial tailspin.

Product liability insurance can help defend creators and manufacturers when a customer claims your product hurt them, or damaged their property, after you sold it to them. Not sure how much product liability insurance costs or whether it’s worth the investment? We have you covered. How much does product liability insurance cost? The short answer to that is: it depends. Industry research suggests product liability insurance cost has increased over the past decade. According to the Insurance Information Institute (III), the net premiums written for product liability coverage have increased from around $2 million in 2010 to over $3 million in 2019.¹

On average, product liability coverage for low-risk categories is $0.25 per each $100 in revenue. So, for example, depending on the type of product you make, if your company earns $500,000 in sales, your product liability could cost about $1,250.²

Insurance coverage through Thimble provides general liability insurance including product liability on monthly and annual policies for many creatives such as leatherworkers, apparel makers, candlemakers, soapmakers, and jewelry makers.

Why do you need product liability insurance?

Your customers come to you for high-quality products, so you need to be prepared when things go awry. Sold as part of general liability insurance, product liability coverage protects businesses from the financial consequences of claims arising from:

• Third-party injuries
• Third-party property damage
• Third-party wrongful deaths or illnesses

If you have product liability insurance, your insurer will provide the investigation and legal defense for these kinds of claims. For example, if you’re a soapmaker and your soap causes harm to a customer’s skin because of an unintentional mistake in your formula, you could be held liable for their medical expenses, but your product liability insurance may cover those costs. Why is product liability insurance worth the cost? As a small business owner, the last thing you want is to be hit with a costly lawsuit that could upend your business. If a customer takes their product liability claim to court, the expenses associated with your defense could get very high, very fast.

Though many lawsuits are settled out of court, the average personal injury jury award for product liability claims was more than $7.6 million in 2018, per the III. Between 2017 and 2018, the cost of defending against product liability claims increased from $645,190 to $861,155.³ And even those lawsuits settled outside the courtroom still involve expensive legal fees!

Factors that influence product liability insurance cost

Though general liability policies with product liability are generally affordable, there are still some other factors at play. Your premium may vary based on the following:

• Location: If you run your business in a city or meet your clients in person, your insurance company may view your business as riskier than others.
• Industry: Every profession comes with risks. The level of risk for soapmakers, for example, is likely different than that of construction companies.
• Years in business: Having an established history with plenty of data allows insurance companies to assess your risk profile properly. Your experience is also a plus when it comes to pricing your risk.
• Crew size: Your company is at a higher risk of claims occurring if it has employees in one or multiple workplaces.
• Coverage limit: The higher your coverage limit, the greater your premium will be. If, for example, you want a $2 million limit instead of a $1 million limit, your premium will likely be higher but not necessarily double.

What are the product liability coverage limits?

Your product liability coverage limit will depend on how much insurance you need. There are two types of limits on your policy: your per occurrence limit, and your aggregate limit.

In plain language, the per occurrence limit is how much your insurance company must pay for all the damages arising from bodily injury and property damage claims for one incident.⁴ The aggregate limit is the most your insurer will pay for all losses during the policy year.

With product liability insurance, your per occurrence coverage limits are generally up to $1 million or $2 million, and the aggregate limits will vary depending on the insurance carrier’s offerings. If you feel you will need more coverage, you may decide to go with the higher limit.

The bottom line

Here’s what you need to remember about product liability insurance through Thimble:

• It protects you from the financial consequences of injury or property damage claims from third parties arising from products you’ve made and sold.
• It is sold with general liability insurance for many crafters on monthly and annual policies.
• The legal fees for fighting these claims can be expensive, and the awards for damages could reach six or seven figures. Product liability insurance provides claim investigation and legal defense of claims.

From the materials and manufacturing to customer service, you’ll put your best foot forward with each product you create.

Thimble understands that entrepreneurs need to protect their small businesses from all kinds of unforeseen risks. And to do that, they need to have access to easy-to-understand, dependable policies.

Getting coverage quickly is as easy as filling out a few questions and receiving a quote in less than a minute. Click “Get a Quote” to get started.

Sources:

1. Insurance Information Institute. Facts + Statistics: Product liability.
2. How Much. Product Liability Insurance Cost.; The Cost Guys. Average Cost of Product Liability Insurance.
3. Insurance Information Institute. Facts + Statistics: Product liability.
4. International Risk Management Institute. How the Limits Apply in the CGL Policy.