What is product liability insurance?

If your business manufactures, supplies or sell products, you could be liable for compensation costs if a faulty product causes injury to a customer or results in property damage.

Product liability can protect your business against liability costs. So, what does product liability insurance cover and do you need it? Let’s find out.

If your business manufactures, supplies or sell products, you could be liable for compensation costs if a faulty product causes injury to a customer or results in property damage.

Product liability can protect your business against liability costs. So, what does product liability insurance cover and do you need it? Let’s find out.

Emily Kindness
From the Business team
4
minute read
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Posted 7 MAY 2021

What is product liability insurance?

Product liability insurance is a type of business insurance that can cover compensation and legal costs if someone is injured or their property is damaged because of a product you’ve sold them.

Product liability insurance comes with public liability insurance cover when you compare quotes with Compare the Market.

Who needs product liability insurance?

If your business manufactures, designs or supplies physical products to customers, then product liability insurance can be useful to purchase as part of your business insurance.

Be aware that you can still be liable for faulty products even if you didn’t manufacture them.

You may need product liability insurance if:

  • the name of your business is on the product
  • your business repairs or refurbishes a product

You could also be liable if the manufacturer of a faulty product you sold has gone out of business or can’t be traced.

Should I have product liability insurance?

Product liability insurance isn’t a legal requirement, although businesses that work in your supply chain may insist you have it.

By law, products you sell must be safe for consumers to use – this includes food.

Let’s say you own a restaurant – product liability insurance could protect you if a customer suffers food poisoning from something they ate in your restaurant. Food is your livelihood; it’s a product you sell. If you’re sued, and you don’t have public and product liability cover, the compensation and legal costs could be enough to put you out of business.

Do I need product liability cover if I sell second-hand products?

Yes, if anything, product liability cover is even more important if you sell second-hand products. When it comes to new products, most of the liability lies with the manufacturer. But if your business deals with second-hand goods – for example, an antiques or charity shop – it can be difficult and sometimes impossible to locate the original manufacturer. In this case, the liability falls on you.

What does product liability insurance cover?

Product liability insurance could protect you against compensation and legal costs if a customer sues you for damages or injury because of a faulty product you sold them.

If you don’t actually manufacture the product – for example, you distribute it, you might also be covered if:

  • the products were faulty when they were supplied to you
  • you gave customers the right safety instructions and warnings about misuse
  • you included terms for the return of faulty goods to the manufacturer
  • the contract you have with the manufacturer includes product safety, quality control and returns

What’s the difference between product liability and public liability cover? 

Product liability is often confused with public liability insurance. They both cover different things. Public liability covers damages or injuries to the public caused by your business activities – for example, if a customer slips on the floor of your workshop or restaurant.

Product liability covers injuries and damages caused by a specific product you manufacture, supply or sell.

How much product liability cover do I need?

It’s up to you to decide how much product liability cover you need for your business. Think about the possible size of a compensation cost if someone was injured – such as medical costs and loss of income costs.

The amount of cover you’ll need can also depend on the type of business you run. Most insurance providers offer product liability cover between £1 million and £5 million.

Buying product liability insurance

Product liability insurance comes with public liability insurance cover when you compare quotes with Compare the Market. Be careful to check the terms and conditions for exclusions to make sure you have the right cover for your particular business.

Read our guide to the other types of business insurance you might need.

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