What Is Product Liability Insurance? (2025 Guide)

Updated: September 10, 2025

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Key Takeaways

Product liability insurance protects your business when customers get hurt or suffer property damage from your products.

Insurance for product liability covers manufacturing defects and design flaws, but doesn't cover employee injuries or service mistakes.

To determine how much coverage you need, consider your product's risk level, sales volume, financial capacity and contract requirements.

What Is Product Liability Insurance and How Does It Work?

Running a product-based business means facing the reality that even careful companies can face lawsuits when products cause harm. Courts can hold you responsible under strict liability rules, which vary by state and apply even when you haven't been negligent. Customers only need to prove that your product hurt them.

Note: State laws and liability standards vary. Consult an attorney for legal guidance specific to your situation.

Your customers can sue when products hurt them or damage their property. Product liability insurance pays for these lawsuits and protects your business finances.

Three defects commonly lead to these lawsuits:

Common Product Problems That Trigger Claims

Manufacturing Defects

Coffee maker with bad wiring that electrocutes users

Design Defects

A chair with only three legs that tips over

Marketing Defects (Failure to Warn)

Power tools without safety warnings

Most general liability policies automatically include product liability coverage. If you make, sell or distribute products, check that it's part of your policy before you sign. Some high-risk businesses need separate coverage, so ask your agent about your situation.

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WHEN YOU NEED STANDALONE PRODUCT LIABILITY INSURANCE

Some businesses can't get product liability coverage bundled with their regular general liability policies. Insurers require high-risk industries to get monoline policies (product liability insurance bought separately).

Take children's toys, medical implants or dietary supplements, for example. Many insurers prefer not to include product liability coverage for these industries in standard packages because they carry higher liability risks.

Consult your insurance agent if you're unsure about your industry's requirements. They'll help you figure out if your business needs separate product liability coverage.

What Does Product Liability Insurance Cover?

Product liability coverage has specific boundaries that determine when you can file a claim and when you can't. Here's what's covered and what isn't:


Your product injures someone during normal use	✅	Restaurant's contaminated ingredients cause food poisoning due to preparation defects.
Customer gets hurt at your business location	❌	If a customer slips in your store, this is premises liability, not product liability. General liability insurance would handle slip-and-fall accidents on your property.
Flawed design makes product dangerous	✅	Handmade candles cause fires because the wick design makes them burn too hot.
Worker gets hurt using your equipment	❌	Factory worker hurt by machinery. Workers' compensation insurance handles employee injuries.
Product lacks safety warnings and hurts user	✅	Power tools injure users because safety instructions weren't included with the product.
Product doesn't work but nobody gets hurt	❌	Wrong software causes the client to miss the deadline. No bodily injury means no coverage. Errors and omissions insurance would protect you better against service mistakes.
Normal wear causes product failure and injury	✅	A construction worker was injured when a ladder collapsed due to metal fatigue.
Customer complains about service quality	❌	Your website gets negative reviews. No physical harm means no product liability coverage.
Allergic reaction despite clear ingredient labels	✅ / ❌	A customer reacts to clearly labeled peanut cookies. Coverage depends on policy terms.

*Coverage depends on your policy terms, what actually happened and your state's laws. These are just examples to help you understand how coverage works.

How Much Product Liability Insurance Do You Need?

No state requires product liability insurance, but you'll likely need it anyway. Most retailers and business partners demand proof of coverage before working with you. More importantly, one lawsuit can bankrupt your business without insurance protection.

Here's what affects how much coverage you need:

Product risk level

Medical devices, children's toys, and power tools carry serious lawsuit risks. A defective pacemaker or unsafe toy can trigger million-dollar claims. Clothing, books or office supplies rarely cause major injuries or expensive lawsuits.

Your financial capacity

If a significant lawsuit threatens your business's survival, you need higher coverage limits than a company that could absorb substantial legal costs and keep operating.

Annual sales volume and geographic reach

Large-scale national distribution creates exponentially more lawsuit exposure than small local sales, so higher revenue demands higher coverage limits.

Contract requirements from key partners

Retailers or distributors may refuse to work with you unless you carry specific minimum amounts, making this a business necessity rather than just protection.

Industry lawsuit trends

Some industries face frequent class-action suits or higher average settlements, which should push you toward more generous coverage limits even if your specific product seems low-risk.

Talk to an insurance professional about your coverage needs. They can help you evaluate these factors and explain the different coverage types available. That ensures you get enough protection without paying for more insurance than you need.

Who Needs Product Liability Insurance?

If you're wondering whether your business needs product liability coverage, you're asking the right question. Any business that makes, sells or distributes physical products needs this protection, though some industries deal with bigger risks than others.

Your risk depends on what you sell. These businesses benefit most from product liability coverage:

Food and beverage companies

Food poisoning, allergic reactions and contamination claims are common risks that can result in serious illness and costly lawsuits.

Manufacturing businesses

Since you create products from scratch, you're responsible for design flaws, production defects and safety issues that could harm users.

Retailers and e-commerce stores

You can be sued for selling defective products even if you didn't make them, especially if customers can't locate the original manufacturer.

Cannabis companies

Products that affect users' health face strict scrutiny, and the evolving legal landscape creates additional liability risks for dispensaries and producers.

Catering services

Contaminated ingredients or improperly stored food can cause widespread illness at events, leading to multiple bodily injury claims from a single incident.

Candle and home goods makers

Your candles could start house fires if the wicks burn too hot or create oversized flames, or your products might release toxic chemicals that send customers to the hospital.

Children's product manufacturers

Toys, furniture and other kids' items face rigorous safety standards, and injuries to children often result in substantial settlements.

Pet product companies

Dogs and cats get poisoned by tainted food or choke on flimsy toys, and pet owners don't hesitate to sue when their animals get hurt.

Insurance for Product Liability: Bottom Line

Product liability insurance financially protects your business when defective products hurt customers or damage their property. While it won't cover employee injuries or service errors, it handles the manufacturing defects and design flaws in products you make, distribute or sell. Evaluate your product risks, sales volume and financial situation to choose appropriate coverage limits.

Product Liability Insurance: FAQ

We answered some frequently asked questions small business owners have about product liability insurance:

How much does product liability insurance cost?

Product liability insurance costs depend on your business type and risk level. High-risk products like medical devices cost much more than low-risk items like clothing. The good news is that you can get this coverage bundled with your general liability policy most of the time.

What's the difference between product liability and general liability insurance?

Product liability covers injuries from your products, while general liability covers broader business risks. Product liability handles manufacturing defects, design flaws and inadequate warnings. General liability covers premises accidents and advertising injuries. Most policies bundle both together for comprehensive protection.

Does product liability insurance cover product recalls?

Standard product liability doesn't cover recall costs like notifications or retrieving products. It covers only injuries and property damage from defective products. Recall expenses need separate product recall insurance, which you can add as an endorsement. Ask your agent about recall coverage if your products might face widespread recalls.

Do I need product liability insurance if I only sell online?

Yes, online sellers need coverage just like physical retailers. Customers can sue you for selling defective products even if you didn't make them. Online marketplaces like Amazon often require product liability coverage. Whether you're dropshipping or reselling items, you face liability risks if products hurt customers or damage property.

What should I do if a customer gets hurt by my product?

Contact your carrier within 24 hours to report the incident and start the claims process. Don't admit fault or discuss details beyond expressing concern. Document everything with photos of the product and the incident scene. Your insurer will assign an adjuster and provide legal help. Follow their guidance to protect your coverage.

Can I be sued for products I didn't manufacture?

Yes, retailers, distributors and importers can face product liability lawsuits. You're responsible for selling defective products even if you didn't make them, especially when customers can't find the manufacturer. Under strict liability laws, fault doesn't matter. You could be liable if the product caused harm and you sold it.

How long does product liability coverage last after I stop selling a product?

Coverage continues as long as you maintain your policy, even for products you no longer sell. Most policies cover incidents while your coverage is active, regardless of when you sold the product. If you switch insurers or cancel, you may lose protection unless you buy "tail coverage" (worth considering if you've sold higher-risk products).

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.

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