Here's something most new e-commerce business owners don't realize until it's too late: selling online doesn't shield you from real-world liability. Whether you're dropshipping phone cases or selling handmade candles on Etsy, the moment a customer claims your product injured them or damaged their property, you're facing potentially devastating costs. That's where general liability insurance becomes essential—not just nice to have.
The reality is that major marketplaces like Amazon and Walmart now require proof of insurance once you hit certain sales thresholds. But beyond compliance, general liability insurance protects your business from claims that could otherwise wipe out everything you've built. Let's break down exactly what this coverage does for e-commerce businesses and why you probably need it sooner than you think.
What General Liability Insurance Actually Covers
General liability insurance for e-commerce businesses functions as your financial safety net for third-party claims. The policy covers three main areas that matter to online retailers:
First, bodily injury claims. If a customer alleges that a product you sold caused them physical harm—say, a defective phone charger that sparked and burned someone—your general liability policy steps in to cover medical expenses, legal defense costs, and any settlements or judgments. This protection extends whether you manufactured the product yourself or sourced it from suppliers.
Second, property damage coverage handles situations where your business operations or products damage someone else's property. This might seem less relevant when you're selling online, but it absolutely applies. If you rent warehouse space and accidentally cause water damage to the building, or if a product malfunctions and damages a customer's home, you're covered.
Third, and often overlooked, general liability covers personal and advertising injury. This includes claims of copyright infringement, slander, or libel related to your marketing activities. If a competitor claims your product descriptions copied their content, or if you're accused of disparaging another business in your advertising, your policy provides legal defense.
Product liability protection deserves special attention for e-commerce businesses. This coverage—typically included in your general liability policy—specifically addresses claims that products you sold caused harm or illness to customers. Whether you're selling supplements, electronics, children's toys, or clothing, product liability coverage protects you from the financial fallout of defect claims, even when you didn't manufacture the items yourself.
Why E-commerce Businesses Need General Liability
The marketplace requirements alone make general liability insurance nearly mandatory for growing online businesses. Amazon requires sellers who generate over $10,000 in monthly sales to purchase commercial product liability insurance within 30 days—with minimum coverage of $1 million. Walmart has similar requirements with thresholds of $1 million per occurrence and $2 million aggregate limits. If you can't provide proof of insurance when requested, these platforms can suspend or terminate your seller account.
But marketplace compliance isn't the only reason you need this coverage. The legal and financial risks are substantial. A single product liability lawsuit can easily cost $50,000 to $100,000 in legal defense fees alone—before any settlement or judgment. Without insurance, those costs come directly from your business bank account or personal assets. For most small e-commerce operations, one serious claim means bankruptcy.
The risk intensifies as your sales volume grows. The more products you sell, the higher the statistical probability of defects, customer injuries, or dissatisfied buyers pursuing legal action. And here's the kicker: you're liable for products you resell, not just items you manufacture. Dropshipping a defective item from an overseas supplier? You're still on the hook if it harms a customer.
Beyond lawsuits and platform requirements, landlords typically require proof of general liability if you lease warehouse or office space. Payment processors and wholesale vendors may also request certificates of insurance before establishing accounts or extending credit. Without coverage, you'll find yourself locked out of growth opportunities.
Understanding Coverage Limits and What You Actually Need
General liability policies use two key numbers: per-occurrence limits and aggregate limits. The industry standard—and what most e-commerce businesses carry—is $1 million per occurrence with a $2 million aggregate. Here's what that means in plain English.
The per-occurrence limit is the maximum your insurance company will pay for a single claim or incident. If a customer sues you claiming your product caused $1.5 million in damages, and your policy has a $1 million per-occurrence limit, you'd be personally responsible for the remaining $500,000 (assuming the full claim amount was awarded).
The aggregate limit caps the total amount your insurer will pay for all claims during your policy period, usually one year. With a $2 million aggregate, once your insurer has paid out $2 million across multiple claims in a policy year, you're unprotected for any additional claims until the policy renews.
For most e-commerce businesses, the standard $1 million/$2 million policy provides adequate protection and satisfies marketplace requirements. However, you might need higher limits if you're selling high-risk products like electronics, supplements, or children's items—categories with elevated injury risks and claim frequencies. Businesses selling pharmaceuticals, medical devices, or items with known recall issues may struggle to secure coverage at all without specialized policies and significantly higher premiums.
What General Liability Insurance Actually Costs
Here's the good news: general liability insurance for e-commerce businesses is surprisingly affordable, especially compared to the risks it mitigates. According to 2026 industry data, most online retailers pay between $400 and $500 annually for general liability coverage, averaging about $42 per month. Some insurers offering specialized e-commerce policies provide rates as low as $24 per month for smaller operations.
Your actual premium depends on several factors. Product type matters enormously—selling low-risk items like stationery or apparel typically costs less than selling electronics or supplements. Your annual revenue affects pricing too, with higher sales volumes generally meaning higher premiums (though economies of scale apply). Claims history plays a role; if you've had previous liability claims, expect to pay more. And the coverage limits you select directly impact cost—higher limits mean higher premiums.
Many e-commerce businesses save money by bundling general liability with property insurance in a Business Owner's Policy (BOP). BOPs typically cost around $95 per month but provide both general liability and property coverage—protecting your inventory, equipment, and business property in addition to liability risks. For businesses with physical inventory or rented warehouse space, a BOP often delivers better value than standalone general liability.
How to Get Started with General Liability Coverage
Getting insured is straightforward. Start by gathering basic information about your business: annual revenue, product categories, number of employees, and business location. Most insurers can provide quotes within minutes using online applications. Compare quotes from at least three providers, paying attention not just to premium costs but also coverage limits, deductibles, and any exclusions specific to your products.
Once you purchase coverage, immediately request a certificate of insurance from your provider. This document proves you carry coverage and includes your policy number, coverage limits, and effective dates. Most insurers email certificates within 24 hours. Upload this certificate to your marketplace seller portals, send copies to your landlord if you rent space, and keep digital copies accessible. Set calendar reminders for policy renewal—letting coverage lapse can result in suspended marketplace accounts or voided landlord agreements.
Don't wait until you hit Amazon's $10,000 monthly threshold or receive a compliance notice from a marketplace. Insurance applications can take days to process, and some high-risk products require underwriting approval. Secure coverage early, before you're racing against account suspension deadlines. The peace of mind alone—knowing a frivolous lawsuit won't destroy your business—makes the modest annual premium worth every penny.
