Here's something that keeps business owners up at night: you sell a product, everything seems fine, and then months later you're facing a lawsuit because someone claims your product hurt them. Maybe it's a faulty electrical component that sparked a fire. Maybe it's a food product that caused an allergic reaction. Or maybe it's a toy that broke and injured a child. When your product causes harm—or someone claims it did—you need product liability insurance.
The numbers tell the story: in 2024, GSK paid $2.2 billion to settle lawsuits over its heartburn drug Zantac, and Philips shelled out $1.1 billion for recalled sleep apnea machines. Product liability claims globally grew by 12% in 2023, and the median jury award in major liability cases hit $44 million. These aren't just cautionary tales for Fortune 500 companies—small businesses face product liability claims every day, and without proper coverage, a single lawsuit can end your business.
What Is Product Liability Insurance?
Product liability insurance protects your business when someone claims a product you manufactured, sold, or distributed caused them injury or financial loss. This coverage handles legal defense costs, settlements, and judgments if you're sued. It covers three main types of claims: manufacturing defects (something went wrong in production), design defects (the product was inherently unsafe), and failure to warn (you didn't provide adequate safety instructions or warnings).
Most businesses get product liability coverage as part of their general liability insurance policy. But here's the catch: general liability has limitations on product coverage, and some high-risk products need separate, specialized policies. If you manufacture products, import goods from overseas, or sell items under your own brand name, you'll likely need dedicated product liability coverage with higher limits.
Who Needs Product Liability Insurance?
If you touch a product at any point in the supply chain, you need this coverage. Manufacturers obviously need it—they're the most obvious target for lawsuits. But distributors and retailers get sued too, even if they had nothing to do with making the product. Courts don't care that you just sold something someone else made. If a customer buys a defective product from your store and gets hurt, they can sue you.
Importers face special exposure. If you bring products in from overseas, your insurance company considers you the manufacturer in the U.S. Why? Because it's too expensive and complicated to pursue claims against foreign manufacturers. That means if you import electronics from China and sell them under your brand, you're on the hook for any defects. Retailers also face higher liability if products carry their brand name or if they provided design specifications to the manufacturer.
Even if you're not legally required to carry product liability insurance—no state mandates it—you'll often need it to do business. Suppliers and major retailers like Amazon require proof of coverage before they'll work with you. The industry standard is $1 million per occurrence and $2 million aggregate, though some partners demand higher limits.
How Much Does Product Liability Insurance Cost?
Small businesses pay an average of $500 to $1,200 annually for general liability insurance that includes product liability coverage. But that's just an average—your actual cost depends on what you're selling. A photographer selling prints might pay $30 per month, while a construction company selling installation services could pay $150 or more.
The type of product matters most. Sell children's toys, food products, medical devices, or anything that goes into someone's body? Expect higher premiums. These products carry serious injury risk, and insurers price accordingly. Location affects cost too—businesses in Oregon pay an average of $37 monthly while Wyoming businesses pay $60 for the same coverage.
Coverage limits drive your premium up or down. Most businesses choose $1 million per occurrence and $2 million aggregate—that's the sweet spot of adequate protection without overpaying. But if you sell high-risk products or work with partners requiring higher limits, you'll pay more. Your claims history matters too. File claims and your premiums rise. Maintain a clean record and you'll see lower rates over time.
What Product Liability Claims Look Like
Product liability claims come in three flavors. Manufacturing defects happen when something goes wrong during production—like a batch of electronics with faulty wiring, or food products contaminated during processing. Design defects mean the product was dangerous from the start, even when manufactured perfectly. Think of a ladder designed with an inherent balance problem, or a car with a fuel tank positioned where it's likely to explode in rear-end collisions.
Failure to warn cases involve inadequate instructions or safety warnings. You sold a powerful cleaning chemical without proper hazard labels. You didn't warn that a product contains common allergens. You failed to include assembly instructions that would prevent injury. These claims spike when products cross international borders—importers often get sued because warning labels weren't translated or adapted for U.S. consumers.
The costs add up fast. The average cost to defend a liability claim hit $75,000 in 2024, and that's just legal fees—before any settlement or judgment. Legal defense costs for liability insurers climbed to $15 billion in 2023, up 7% from the previous year. When cases go to trial, the numbers get scary. The median jury award in major liability cases reached $44 million in 2023, driven largely by product liability claims.
How to Get the Right Coverage
Start by checking if your general liability policy includes product liability coverage. Most do, but read the fine print for exclusions. If you manufacture products, import goods, or private label items, you'll likely need a separate product liability policy or an endorsement to your general liability coverage.
If you work with contract manufacturers, demand that they name you as an additional insured on their product liability policy. Get a certificate of insurance proving this coverage. This doesn't replace your own coverage, but it gives you another layer of protection if something goes wrong during manufacturing.
Choose coverage limits based on your actual risk, not just the minimum your partners require. Consider your product type, sales volume, and worst-case scenarios. A small-batch artisan food producer needs different limits than an electronics importer shipping thousands of units monthly. Talk to an insurance agent who specializes in your industry—they'll understand risks you might not consider.
Product liability insurance isn't optional if you're serious about protecting your business. With litigation costs rising 57% over the past decade and consumer lawsuits up 15% in recent years, the risk only grows. A single claim can cost more than most small businesses make in a year. But the right coverage—whether bundled in your general liability policy or as a standalone product—gives you the protection to sleep at night. Compare quotes, understand what you're buying, and get coverage before you need it. Because by the time someone files a claim, it's too late.
