Let’s understand the benefits and use of product liability insurance
Let’s understand the benefits and use of product liability insurance 19th July 2022
Let's say you're a washing machine manufacturer. Due to some defect in the formulae of chemicals used in the hose pipe of your washing machine, it is more likely to burst. The product has already hit the shelves, and you're receiving massive backlash for the damaged goods and might be at risk of a few customers suing you. This event can potentially shut down your business as you don't have enough capital to pay for the legal fees. You are incurring huge losses now as you have to take down the products from the shelves.
The only way-out would be an insurance covering you against these unforeseeable liabilities. The insurance that is suitable for this situation is product liability insurance. Product liability insurance protects manufacturers, wholesale and distribution businesses, and retailers against claims that the product they have sold has caused harm to a customer, including either bodily or property damage.
This insurance is helpful for all kinds of businesses. Taking the above example of the washing machine, the company should be insured with this type of insurance. This is because when a lawsuit is launched, an enquiry is made on all the companies involved. Small businesses need it more than others because they usually don't have the capital to pay the customer and can quickly go bankrupt.
This blog explains why product liability insurance is a must for your company.
Coverage for design defects:
Design defects can bother customers long after the product has been manufactured and sold off. The customer, in most cases, can still sue the organisation which manufactures the product. Product liability reimburses you for the expenses incurred due to such design errors.
Coverage for manufacturing or production flaws:
The most crucial feature of product liability insurance is that it provides coverage for any manufacturing defects that might cause harm to a customer.
Protection against packaging concerns:
Sometimes the manufacturer does not provide an adequate warning on the product package, such as potential defects, instructions for properly using the product, or some allergenic substances. One example is how beverage companies have to warn if it is hot and not to be liable if the hot drink is spilled on a customer. Additionally, if there's some substance like peanuts or other common inflammatory substances in the product and it's not mentioned clearly, the manufacturer might be prosecuted. Product liability insurance provides coverage for all these situations.
Supplemental commercial general liability coverage:
Product liability policies generally work along with commercial general liability coverage to provide the company with insurance against such claims by customers.
There are several reasons to take product liability insurance as a business owner. But the payout certainly depends on which kind of policy you've chosen. The insurance cost depends on various factors, including your industry, the potential risks associated with that industry, your business's claim history, and the insurance company's policy limits. For example, getting cover for risky businesses like alcohol, tobacco, and contraceptives is challenging because of the high rate of lawsuits that are usually launched against them.
Insurance companies may charge you a higher premium for such kinds of businesses. It's always best to be insured to remain stress-free. Business owners should also invest in public liability insurance policy to provide the best coverage to third parties in the event of financial loss, injury or death due to an accident.
Click HERE to know more about public liability insurance policy.
Disclaimer: The information provided above is for illustrative purposes only. To get more details, please refer to policy wordings and prospectus before purchasing a policy.