What is product liability insurance?

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    Chris Godfrey

    Page written by Chris Godfrey. Last reviewed on May 26, 2024. Next review due April 6, 2025.

    Product liability insurance (PL) – also known as ‘product insurance’ – is a business insurance designed to protect companies, partnerships, sole traders and the self-employed from financial loss in the event that someone is harmed, or property is damaged due to the products that they supply. 

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      Do I need product liability insurance?

      Suitable for SMEs, sole traders and the self-employed, product liability insurance is a must for any business that designs, manufactures or distributes:

      • Parts for finished goods 
      • Components for finished goods
      • Finished goods
      • Packaging for all of the above

      Your business could also be held liable even if you outsource your manufacturing and only put your name on the finished product, or you have repaired or refurbished a faulty product that caused injury or property damage. You may also be at risk if you import products from outside the European Union, cannot identify the original manufacturer, or they have gone bust leaving your business as the last man standing. 

      Why do I need product liability insurance? What could go wrong?

      It doesn’t take much to cause an accident. Even the smallest part or finished product has the potential to cause physical harm or property damage if it is faulty, fitted incorrectly, or wrongly supplied for purpose. For example – a manufacturer produces electrical components used in consumer hair dryers. A minor error in a wiring connector causes a short circuit that creates an electrical fire. The part is only worth a few pennies, but the compensation claims from the user who was burned could easily cost tens of thousands of pounds. Could your business survive such an issue? 

      What does product liability insurance cover?

      Product liability insurance protects against claims for:

      • Personal injuries caused by faulty or wrongly supplied product(s)
      • Loss of or damage to property caused by faulty or wrongly supplied product(s)
      • Unforeseeable circumstances such as product faults that quality control systems could not reasonably identify or foresee

      PL may not cover against:

      • Personal injury or property damage from faulty products caused by poor workmanship or negligence
      • Financial losses suffered by a person or business caused by your faulty product
      • Product liability insurance isn’t only for manufacturers. In the event of an accident, your business could be held liable even if you only distributed or repaired the product.

      Who is liable for damage caused by a defective product?

      Although liability will be determined by the circumstances unique to each case, the Consumer Protection Act states that manufacturers, distributors, suppliers and retailers can be held responsible for damage, injury or death caused by their product or any of that product’s component parts. This includes second-hand and refurbished products and businesses that only provide repairs.

      How much product liability insurance do I need?

      There is no real limit to the property damage or level of injury that faulty products can cause. As such, UK providers of parts, components and finished goods will typically insure themselves for £1 million to £5 million depending on the size of their business and the type of products they supply.

      Is product liability insurance a legal requirement?

      No. Only employers’ liability insurance is legally required. Other business insurances are optional, although some clients and distributors may require your organisation to have product liability insurance in place before they trade with you.

      How much does product liability insurance cost?

      Premiums for product liability insurance can start at less than £40 per month, but just as no two UK businesses are alike, so no two product liability insurance needs are the same. Costs will depend on your business type and the risks attached to what you make or sell, making every quote unique. 

      Get started with Swoop

      All business involves risk, but that doesn’t mean you have to suffer the consequences if things go wrong. Don’t let a faulty product put your business in a spin. Contact Swoop today to compare top-quality product liability cover from different providers and to discuss all your business insurance needs. 

      Written by

      Chris Godfrey

      Chris is a freelance copywriter and content creator. He has been active in the marketing, advertising, and publishing industries for more than twenty-five years. Writing for Barclays Bank, Metro Bank, Wells Fargo, ABN Amro, Quidco, Legal and General, Inshur Zego, AIG, Met Life, State Farm, Direct Line, insurers and pension funds, his words have appeared online and in print to inform, entertain and explain the complex world of consumer and business finance and insurance.

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