Product liability insurance isn't required by law in any state, but provides financial protection if you make, sell or distribute products.
Discover low-cost product liability coverage below.
Updated: August 26, 2025
Advertising & Editorial Disclosure
No state legally requires product liability insurance, unlike workers' compensation coverage or commercial auto insurance.
Food manufacturers, electronics makers, toy companies and private label retailers face the highest liability risks and could benefit most from this coverage.
You should also consider general liability, professional liability and commercial property insurance for full coverage.
Product liability insurance covers legal costs when customers claim your products caused injury or property damage. It applies to everyone in the supply chain, since manufacturers, distributors and retailers can all be held liable for product liability claims.
The product liability coverage comes as part of your general liability policy or as standalone insurance, and pays for legal defense costs, court settlements and medical expenses when product defect lawsuits arise.
Manufacturers need product liability insurance because they face the highest liability risk. No matter how good your quality control is, defects happen. Sometimes it's just a few bad units, other times it's an entire production run. One lawsuit from a defective product can cost hundreds of thousands of dollars.
Product liability laws in several states, including Washington, Texas and Wisconsin, allow customers to sue manufacturers for all three defect types (design flaws, manufacturing errors and inadequate warnings), making risk unavoidable. They only need to prove your product was defective and caused harm, holding you responsible even if you did everything right and weren't negligent. That makes product liability coverage essential protection against financial ruin.
Product liability laws operate under two different standards. Under negligence, you're only liable if you did something wrong or were careless. Under strict liability, you can be held responsible even if you followed all proper procedures and weren't negligent.
Most states apply strict liability to product defects, meaning manufacturers and others in the supply chain face legal exposure regardless of how careful they were.
Retailers and distributors need product liability insurance because they can be sued even though they didn't make the product. While you typically face lower liability risk than manufacturers, you can still be held responsible under specific circumstances largely outside your control, such as when the manufacturer goes out of business or can't be legally reached.
You're also liable if the product carries your brand name or if you provided design specifications to the manufacturer. Since you can't control whether manufacturers stay financially stable, can be sued in U.S. courts or branding decisions made years ago, product liability insurance protects you from this unexpected exposure.
Service businesses have the lowest product liability risk. However, you still need coverage if you install, repair or modify products, such as HVAC technicians, appliance repair shops, auto mechanics, plumbers or contractors who install fixtures and equipment.
You can be held liable when your installation or modification work later causes harm, even if you followed proper procedures. Since customers often sue everyone involved when accidents happen, product liability insurance protects service businesses from costly legal defense and potential settlements.
Unlike workers' compensation insurance, which most states mandate for employers with employees, product liability coverage is optional under state law. However, you may still need it to meet contract requirements from landlords, clients or business partners.
While not legally required, certain businesses should strongly consider product liability insurance due to their higher risk exposure. Beyond product liability coverage, these businesses should also consider other types of business insurance for full coverage:
Food manufacturers and processors | Workers' compensation, general liability, commercial property | Food products pose contamination and allergen risks that can affect many consumers simultaneously. |
Electronics manufacturers | Workers' compensation, general liability, cyber liability | Electronic devices can overheat, catch fire or malfunction, creating safety hazards in homes and businesses. |
Toy and children's product makers | Workers' compensation, general liability, recall coverage | Children's products face strict safety regulations, and defects can cause serious injuries to vulnerable populations. |
Cosmetics and personal care companies | Workers' compensation, general liability, professional liability | Skin reactions, allergic responses and chemical burns can result from cosmetic and personal care products. |
Furniture manufacturers | Workers' compensation, general liability, commercial property | Furniture defects can cause injuries from collapse, sharp edges or toxic materials like lead paint. |
Retailers selling private label products | Workers' compensation, general liability, commercial property | Private label retailers become liable as manufacturers for products carrying their brand name. |
E-commerce sellers | Workers' compensation (if with employees), general liability, cyber liability | Online sellers can be sued for defective products even when sourcing from third-party suppliers. |
Contractors installing products | Workers' compensation, general liability, professional liability | Installation errors can make contractors liable for product-related injuries that occur after project completion. |
Disclaimer
Every business faces unique risks, so it's smart to talk with licensed insurance professionals about your specific coverage needs. They can help you find the right policy limits and combinations for your situation and location.
Product liability insurance isn't legally mandated, but high-risk businesses shouldn't skip it. Food manufacturers, electronics companies, toy makers and private label retailers face significant exposure from defective products. Smart business owners pair product liability coverage with other types of business insurance for complete protection.
It's normal to have questions about whether you need product liability insurance. We've addressed several frequently asked questions about this coverage:
Product liability covers injury or property damage from products you make, sell or distribute. General liability provides broader coverage, including slip-and-fall accidents, advertising injury and non-product-related claims at your business location.
Yes, retailers and distributors can face lawsuits for product defects despite not manufacturing the items. You're liable when manufacturers become unreachable, go out of business or if products carry your brand name or meet your design specifications.
Many states apply strict liability to product defects. For example, Washington, Texas and Wisconsin all use strict liability standards, meaning you can be held responsible even if you followed proper procedures and weren't negligent.
Yes, HVAC technicians, plumbers and contractors need coverage when installing, repairing or modifying products. You can be held liable when your installation or modification work later causes harm, even if you followed proper procedures.
Design defects occur when products are inherently dangerous as designed. Manufacturing defects happen when individual products don't match their intended design. Marketing defects involve insufficient instructions or safety warnings about proper product use or known risks.
Product liability lawsuits can cost hundreds of thousands of dollars in legal defense, settlements and medical expenses. These costs can threaten your business's financial stability and long-term viability without proper insurance coverage.
Yes, e-commerce sellers need coverage because you can be sued for defective products even when sourcing from third-party suppliers. Online sellers face liability exposure regardless of whether they manufacture the products themselves or outsource them.
About Mark Fitzpatrick
Mark Fitzpatrick, a Licensed Property and Casualty Insurance Producer, is MoneyGeek's resident Personal Finance Expert. With over five years of experience analyzing the insurance market, he conducts original research and creates tailored content for all types of buyers. His insights have been featured in publications like CNBC, NBC News and Mashable.
Fitzpatrick holds a master’s degree in economics and international relations from Johns Hopkins University and a bachelor’s degree from Boston College. He's also a five-time Jeopardy champion!
Passionate about economics and insurance, he aims to promote transparency in financial topics and empower others to make confident money decisions.
