Product insurance or product liability insurance covers bodily injury and property damage losses caused by operations related to the product. Firstly, Raw materials are processed and manufactured into final products. Then, the products then pass through the delivery chain of many suppliers to reach the final consumer. All these various stages involve risks of their own. The significant activities related to the product that might raise liabilities are:
Why do you need product insurance?
Products are the base of any business. Your success depends upon the performance of your products. Also, a lot is at stake when you launch your products into the market. You are legally liable for any losses or damage caused by your product. The injury or cost could be much more than the profit you make from selling the product. When you sell or source any product, you become the face of the product. You are taking responsibility for the promised results, performance, and safety levels of the product. You could be held liable if:
- The product is defective
- The product is harmful
- You are unable to provide replacement or repair services as per warranty and guarantee
- The performance of the product does not meet the description and requirement
As a retailer or small business, you are an increased risk of product liability lawsuits. The damage can be massive and also ruin your reputation. You are responsible for the costs even if you are not the manufacturer of the product. As per Best Lawyers, General Motors manufactured several cars with defective ignition switches. In that case, the company set aside $400 million in funds to compensate deaths and injuries in the case. Therefore, you need product insurance to protect yourself from such losses and risks. The product insurance premium is much lesser than the damages you might face.
What are the coverages?
The most common consumer claims related to product insurance are:
- Manufacturing defect: This claim states that the product has an error resulting from faulty manufacturing. The complaint does not consider the intention of the manufacturer. For example, jdsupra states a case where McDonald’s had paid $2.7 million in punitive damages and $160000 for medical expenses. The complainant filed the lawsuit when the coffee’s temperature was unreasonably hot, giving her third-degree burns.
- Design defect: This means that the product design does not meet the safety requirements.
- Description defect: Product labels often mention the description indicating the usage and alerts related to the product. When you do not mention the risks, it is a description defect. For example, a toy manufacturer does not specify the age restrictions on a toy train with sharp edges. If a baby plays with it and gets hurt, it is a description defect. In such cases, complainants may file lawsuits as well.
For these common claims, product insurance covers:
- Medical costs
- Compensations for interruption of work
- legal fees
How much does product insurance cost?
The cost of product insurance varies from one policy to another. Also, each insurer has different offers for customers. Some of the factors that affect the cost of product insurance are:
- Nature of business and products: The level of risks related to different product categories are different. Therefore, this affects the price.
- Position in the supply chain: People at the manufacturing and retail level are at the most risks. Consequently, they have to pay more for additional coverage.
- Size of company: Bigger companies need more coverage, and small companies need less coverage.
The number of products, quality control measures, claims history, and many other factors determine the cost of your product insurance policy.
Assess your risks thoroughly and get the best product insurance coverage option.