Updated: July 29, 2025
Advertising & Editorial Disclosure
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.
Think about your product's risk level, sales volume, financial capacity and contract requirements to know how much coverage to get.
Product liability insurance covers you when customers sue over injuries or damage your product caused. 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.
Three defects commonly lead to these lawsuits:
A coffee maker with faulty wiring that shocks users.
A chair with only three legs that tips over.
Power tools missing 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 specific situation.
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.
Product liability coverage has specific boundaries determining when you can file a claim and when you can't. Understanding these coverage limits helps you make smarter decisions about your business insurance needs.
Product preparation or production errors cause injury to users. | ✅ | When a restaurant's contaminated ingredients cause food poisoning in customers, the incident is covered because the contamination occurred during food preparation, creating a manufacturing defect that led to bodily injury. |
Someone gets injured on your business premises. | ❌ | A shopper falls on a slippery surface in your retail store and breaks their wrist. Product liability doesn't cover this because it's a premises liability issue. General liability insurance would handle slip-and-fall accidents on your property. |
A product causes damage due to a design flaw. | ✅ | Your handmade candles cause house fires because the wick design makes them burn too hot. It's covered as a design defect since the faulty design made the candles unreasonably dangerous for everyday use. |
The employee gets injured while working. | ❌ | If your factory worker gets hurt operating machinery during their shift, it isn't covered because product liability doesn't apply to employee injuries. Workers' compensation insurance handles that. |
The product causes injury due to inadequate warnings. | ✅ | Your power tools injure users because you didn't include proper safety instructions. Since adequate safety warnings were missing from the product, this is covered as a marketing defect (failure to warn). |
The product fails to work as intended but causes no physical harm. | ❌ | You ship the wrong software to a client, causing them to miss a deadline and lose money. It isn't covered because no bodily injury or property damage occurred. Errors and omissions insurance would protect you better against service mistakes. |
The product breaks during normal use and causes injury. | ✅ | A construction worker gets injured when your ladder collapses due to metal fatigue. It's covered because the ladder failure caused bodily injury through a manufacturing defect during intended use. |
The product works correctly, but the customer claims reputational damage. | ❌ | Your perfectly functioning website gets negative reviews, and the client blames you for lost business. It isn't covered because product liability requires physical harm. Media liability insurance might cover reputation-related claims. |
The product causes an allergic reaction despite proper labeling. | ✅/❌ | A customer has an allergic reaction to your clearly labeled peanut-containing cookies. Coverage depends on your specific policy terms and the circumstances, since some insurers may exclude foreseeable allergic reactions when you've provided proper warnings. Check with your insurer about how your policy handles these situations. |
Product liability insurance isn't required by law in any state, but small business owners still need it for practical reasons. Retailers and business partners frequently won't work with you unless you can show proof of product liability coverage. Beyond meeting these requirements, it protects your business from expensive lawsuits that could wipe out your finances.
Factor these in when figuring out how much coverage you need:
Start here because high-risk products like medical devices or children's toys can lead to catastrophic injury claims, while low-risk items like clothing rarely result in major lawsuits.
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.
Large-scale national distribution creates exponentially more lawsuit exposure than small local sales, so higher revenue demands higher coverage limits.
Retailers or distributors may refuse to work with you unless you carry specific minimum amounts, making this a business necessity rather than just protection.
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.
Any business that makes, sells or distributes physical products should consider this coverage, though some industries face much higher risks than others.
These businesses benefit most from product liability coverage:
Food poisoning, allergic reactions and contamination claims are common risks that can result in serious illness and costly lawsuits.
Since you create products from scratch, you're responsible for design flaws, production defects and safety issues that could harm users.
You can be sued for selling defective products even if you didn't make them, especially if customers can't locate the original manufacturer.
Products that affect users' health face strict scrutiny, and the evolving legal landscape creates additional liability risks for dispensaries and producers.
Contaminated ingredients or improperly stored food can cause widespread illness at events, leading to multiple bodily injury claims from a single incident.
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.
Toys, furniture and other kids' items face rigorous safety standards, and injuries to children often result in substantial settlements.
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.
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.
We answered some frequently asked questions small business owners have about product liability insurance:
Product liability insurance costs vary widely based on your business type and risk level. High-risk products like medical devices cost significantly 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.
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.
Standard product liability doesn't cover recall costs like notifications or retrieving products. It only covers 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.
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.
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.
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.
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.
