Do I need product liability insurance if I only dropship products?

Yes, absolutely. Even though you're not manufacturing or physically handling the products, you're still legally liable when those products cause injury or property damage. The law considers you part of the distribution chain, which means injured parties can sue you directly. Dropshippers face the same liability exposure as traditional retailers—you just have less control over product quality, which arguably makes insurance even more important.

How much does product liability insurance cost for e-commerce sellers?

Most small e-commerce businesses pay between $500 and $1,200 per year for general liability insurance with $1 million in product liability coverage. The average is around $42 per month. Your actual cost depends on what you sell, your annual revenue, where you sell, and your claims history. High-risk products like electronics or supplements typically cost more to insure than low-risk items like clothing.

What's the difference between product liability and product recall coverage?

Product liability insurance covers claims from third parties who suffer bodily injury or property damage from your products—medical bills, legal defense, settlements, and judgments. Product recall coverage pays for the expense of removing defective products from the market before they cause harm—notification costs, return shipping, refunds, and disposal. Product liability is included in general liability policies, while recall coverage is typically sold separately.

When does Amazon require sellers to have insurance?

Amazon requires insurance once you exceed $10,000 in gross sales proceeds in a single month or if you're a Pro Merchant. You have 30 days after hitting this threshold to obtain commercial liability insurance with at least $1 million coverage per occurrence, list Amazon as an additional insured, and maintain a deductible no greater than $10,000. Your insurance company must also meet specific financial rating requirements.

Will my supplier's insurance cover me if their product is defective?

Not necessarily. While your supplier may have their own product liability insurance, you're still independently liable as the seller. When someone is injured by a defective product, they can sue everyone in the distribution chain—the manufacturer, the distributor, and you. Even if your supplier's insurance eventually pays, you'll still need your own coverage for legal defense costs and to protect your business during the claims process.

What products are considered high-risk for product liability claims?

Products with electrical components, anything consumed or applied to the body (supplements, cosmetics, food), children's products, fitness equipment, and anything with moving parts typically carry higher liability risk. These products face stricter regulations and higher premiums because they're more likely to cause bodily injury. Items like clothing, books, home decor, and non-electronic accessories are generally considered lower risk.

Product Liability Insurance for E-commerce

Here's something most new e-commerce sellers don't realize until it's too late: the moment you sell a product online, you're assuming legal responsibility for what happens when someone uses it. Sell a phone charger that sparks and damages someone's nightstand? You could be on the hook. Ship baby toys with a choking hazard? That's a lawsuit waiting to happen. Even if you didn't manufacture the product yourself—even if you're just reselling items from suppliers—you're still liable when things go wrong.

Product liability insurance exists to protect you from this exact scenario. It covers claims alleging that a product you sold caused bodily injury or property damage because of a design defect, manufacturing flaw, or inadequate warnings. And if you're selling on Amazon and hitting decent sales numbers, it's not optional—it's required.

What Product Liability Insurance Actually Covers

Product liability insurance protects your business when a product you manufacture, distribute, or sell causes third-party bodily injury or property damage. The key phrase here is "products and completed operations"—that's what you'll see in your general liability policy documents. This coverage kicks in after the product leaves your control and causes harm.

Let's say you sell fitness equipment online. A customer buys resistance bands from your store, and during a workout, the band snaps and hits them in the face, causing an eye injury. Your product liability insurance would cover their medical expenses, legal fees if they sue, and any settlement or judgment against you. It also covers property damage—if that same resistance band broke a window or damaged furniture, that's covered too.

Here's what surprises many sellers: you're covered even if you didn't make the product yourself. If you're dropshipping phone cases from overseas suppliers or reselling beauty products, you're still legally liable when those products cause harm. The law doesn't care that you're just the middleman—you put your name on it when you sold it.

Why Marketplaces Require Insurance (And Why You Need It Even If They Don't)

Amazon's insurance requirement is straightforward: once you hit $10,000 in gross sales in a single month, you have 30 days to get commercial liability insurance with at least $1 million in coverage per occurrence. The policy must list "Amazon.com Services LLC and its affiliates and assignees" as additional insureds, and your deductible can't exceed $10,000. Walmart has similar requirements for all sellers on their marketplace.

Etsy and eBay don't require insurance, but here's the catch: they also don't protect you when something goes wrong. You're still 100% liable if a product you sold causes injury or damage. The Consumer Product Safety Commission recently ruled that third-party marketplaces like Amazon are now responsible for recalls and liabilities from defective products sold on their platforms—but that doesn't let you off the hook. It just means Amazon might come after you for reimbursement if they get sued.

Think of product liability insurance as your safety net in the e-commerce world. One lawsuit could bankrupt your business without it. Legal defense costs alone can run into six figures before you even get to a settlement. For $500 to $1,200 per year—that's what most small e-commerce sellers pay—it's one of the best investments you can make.

The Product Recall Problem (And Why Standard Policies Don't Cover It)

Here's something that catches e-commerce sellers off guard: standard product liability insurance doesn't cover the cost of recalling products from the market. Let's say you discover that a batch of children's toys you sold contains unsafe materials. You need to notify customers, manage returns, refund purchases, and possibly dispose of the defective items. That can cost tens of thousands of dollars—and your general liability policy won't touch it.

Product recall insurance is a separate coverage that reimburses you for the actual expenses of pulling defective products off the market. This includes notification costs, shipping and handling for returned items, replacement products, disposal fees, and even lost profits during the recall period. Given that product recalls are increasing in frequency across all industries, this coverage is becoming more essential for e-commerce businesses.

The challenge is that the product recall insurance market has been volatile. Some insurers have exited the market entirely, while others have tightened underwriting standards. But new competition has helped stabilize rates recently, giving businesses more options. If you're selling consumable products, electronics, children's items, or anything regulated by the CPSC, product recall coverage is worth serious consideration.

How Much Coverage Do You Actually Need?

Most e-commerce businesses opt for $1 million per occurrence and $2 million aggregate limits. That means your policy will pay up to $1 million for any single claim and up to $2 million total for all claims during the policy year. This is also Amazon's minimum requirement, which makes it the industry standard.

But is that enough? It depends on what you're selling. If you're selling low-risk items like clothing or home decor, $1 million is probably adequate. If you're selling electronics, supplements, cosmetics, children's products, or anything that could cause serious injury, you might want higher limits. Products that go on or in the body, products with electrical components, and products used by children carry higher liability exposure—and higher premiums to match.

Consider your revenue too. If you're doing $500,000 in annual sales, $1 million in coverage represents two years of revenue. If you're doing $5 million in sales, that same coverage represents just a few months. Some high-volume sellers carry $5 million or even $10 million in coverage through umbrella or excess liability policies stacked on top of their general liability.

How to Get Product Liability Coverage for Your E-commerce Business

Product liability coverage is almost always included in general liability insurance policies—you don't need to buy it separately. When you apply for general liability insurance, the insurer will ask about your products, annual revenue, and where you sell. They'll use this information to assess your risk and quote a premium.

Many insurers now use automated underwriting systems that analyze hundreds of data points to generate instant quotes. Some providers even adjust your premiums monthly based on your actual sales across all channels—so you're not overpaying during slow months or underinsured during busy seasons. This real-time pricing model is particularly helpful for seasonal e-commerce businesses.

When shopping for coverage, make sure your policy doesn't exclude any products you sell and that it meets marketplace requirements if you're selling on Amazon or Walmart. Verify that the insurer has strong financial ratings (S&P A- or AM Best A- minimum) and experience handling global claims. You want an insurance company that will still be around if you need to file a claim five years from now.

Product liability insurance isn't just about checking a box for Amazon's requirements—it's about protecting everything you've built. E-commerce moves fast, and one defective product batch can generate dozens of claims before you even know there's a problem. The right insurance coverage gives you the financial protection and peace of mind to focus on growing your business instead of worrying about worst-case scenarios.