Whether or not your company needs product liability insurance depends on the type of work you do. If you manufacture, design or sell and product that could cause significant property damage or personal injury if something were to go wrong then you will absolutely want to consider product liability – and some customers may even insist you hold a policy before bringing you onboard or allowing you to tender for larger contracts.
From a legal perspective, it is worth noting that there isn’t anything requiring you to hold product liability insurance, so you won’t get in trouble with the authorities if you don’t have a policy while operating. This doesn’t mean it’s recommendable to run your business without it, however, as the costs of something going wrong can be severe, and given that some insurers offer product liability at a discounted rate when bundled with your public liability (that very few businesses would risk operating without), it’s well worth the additional cost.
There are some industries/businesses that are more likely to need product liability than others. If you draw up designs for others to use (architect, carpenter), manufacture goods yourself (parts supplier, factory) or sell products for others to use under your own branding (even if it was manufactured elsewhere – tool shop, plant sales) then you will almost certainly need one.
Industries less likely to require product liability probably consider their work as their service (but without a design aspect) – this would include accountants, management consultants and the like.
What is product liability insurance coverage?
Product liability insurance coverage is the name given to an insurance policy that protects your business if it produces, designs or sells a product that causes property damage or personal injury to an affected third party. This could include a blueprint you’ve drawn up, a part of a larger product you’ve manufactured or a product from outside the EU you’ve branded as your own and sold to customers.
It’ll cover both the cost of any compensation a court awards against you and any legal costs you incur during the defence process, helping your business to weather the financial implications that any claim could have for your company.
If you’re a smaller business, and unsure how you’d cover the costs for a claim against you, then it’s especially important – the small additional cost per month/year is absolutely worth it to protect you from expensive court cases.
Product liability won’t cover any claims for injury or property damage caused directly by you or your employees, so you’ll need public liability for this. It also won’t cover any injuries or illnesses incurred by employees of yours, so if you do hire any staff you’ll need employers’ liability (which is a legal responsibility for any employers in the UK hiring staff). And finally, if you offer your professional advice/designs as a service, you should consider professional indemnity insurance, which will protect you against claims of ‘professional negligence’ from your clients.
How much is product liability insurance for a small business?
Product liability insurance for a small business can start from as little as £6-£7 per month. Do keep in mind that the end cost of your product liability is entirely dependent on the risk profile an insurer creates for your company, which will be based on factors such as your annual turnover, number of employees and the industry you operate in. So, if you’re in an especially high-risk market, or take on especially high-value contracts, don’t be surprised if your insurance costs reflect this.
While you can purchase a bespoke product liability policy, you may also find that many insurers offer it in tandem with your public liability insurance. The combination of the two creates an exceptionally well-rounded insurance policy that can cover you for many of the most common dangers you’ll face while working for a customer, whether you’re working on the project or the work is complete.
Don’t be surprised to see the costs of the two bundled together being significantly lower than purchasing each one separately. Insurers want as much of your business as they can get, and are incentivised to offer discounts to avoid you shopping elsewhere. Some may even package in your product liability for free, especially if you’re seen as low-risk, which is (obviously) an excellent deal.
How much product liability insurance do I need?
A standard product liability will usually cover you for between £1M-£2M of potential damages and legal expenses to start. For many small businesses, this is more than enough cover, and so buying more is unnecessary. If you are a larger business or work on especially high-value contracts where the cost of something going wrong could be more than this, it’s worth considering more – just tell your insurer you’d like a higher limit, and in most cases, they’ll be happy to sort something out for you.
How much you need ultimately depends on your business circumstances – consider the potential damages you’d be responsible for if something does go wrong, and use this to guide your buying decision when it comes to signing up to your policy.