What Is Product Liability Insurance and Why Your Business Needs It

Imagine this scenario: your company manufactures or sells a product you’re proud of — sleek, functional, safe. But then a customer is injured or their property is damaged because of that product. Suddenly, you’re facing legal claims, defence costs, damaged reputation. That’s exactly why understanding what is product liability insurance matters — and why your business should seriously consider having robust product liability coverage in place. 

In this article, we’ll unpack what is product liability insurance, explore how it fits into your overall business liability insurance strategy, clarify how much you might need, highlight the benefits and key considerations — and show how Liberty Insurance designs solutions to keep your business protected. 

Understanding “What Is Product Liability Insurance” 

Product liability insurance is a form of product liability coverage that protects businesses that design, produce, sell or distribute physical products from claims arising out of bodily injury or property damage caused by their products. In essence, it safeguards your business if something goes wrong with a product you supply. 

This coverage steps in when a third party holds your business responsible — even if you weren’t negligent — for damage caused by a product. The legal concept of product liability means that various parties in the supply chain (manufacturer, distributor, retailer) may be held accountable. Having clarity on what product liability insurance is helps you understand the risks your business faces and how coverage can provide a safety net. 

Why It’s Different From Standard Business Liability 

While a normal business liability insurance (which is usually general liability insurance) deals with things such as slips, falls, damage at your premises or third party bodily injuries caused by your business operations, product liability insurance deals with risks arising out of the products that you deliver. 
For example: 

• A fire risk – claim occurs as a result of manufacturing defect. 
• Goods have no suitable warning or directions – claim. 
• Defect in design touches upon all units of a product line – assertion. 

These are squarely covered under product liability and not the normal non-product general liability.  

Therefore, if your business deals in physical goods, you should examine whether your existing policy includes product liability or you need a dedicated product liability endorsement.  

Why Your Business Needs Product Liability Coverage 

The Risk Is Real and Significant 

Even for businesses that believe their products are low-risk, accidents can happen. Product liability cases have the potential to bring millions of dollars as a verdict according to industry publications. 

In the absence of proper product liability cover, your business would be exposed to: 

• Legal defence costs 
• Awards of compensation in case of injury or damage of property. 
• Recall or remediation costs 
• Bad publicity and customer loss. 
  With such magnitude of exposure, it is evident that product liability insurance is not an option to businesses that conduct the selling of products, but a layer of insurance. 
   

Applies Across the Supply Chain 

Whether you’re manufacturing the product, importing it, distributing it, or simply retailing it under your brand, your business can be exposed. That’s why product liability coverage matters regardless of where you sit in the chain. 
At Liberty Insurance, we emphasise that even if your role is “marginal” (such as packaging or labelling), you still need to protect yourself. 
When you understand that coverage is not just for major manufacturers, but for any entity supplying a product, the urgency becomes clear. 

Builds Trust with Stakeholders 

Having proper product liability insurance sends a strong message to customers, suppliers and business partners: you are serious about risk-management. It enhances your business credibility. 
Many large retailers or platforms require proof of product liability coverage before engaging suppliers. So from a business development standpoint, securing the right coverage can open doors — and lacking it may close them. 

What Is the Product Liability Insurance your Company Requires? 

Factors to Consider 

The answer to the question of how much product liability insurance you should take varies according to each individual situation but the major considerations are: 

• The quantity of products that you supply and their volume in units. 
• The character and risk profile of such products (such as children toys and low-risk accessories) 
• Sales channels and territories (local versus global exposure) 
• The list of intermediaries (manufacturers, importers, distributors) 
• Partner or platform contractual obligations. 
  The larger you get, both in size or geography, the more you are exposed to risk, and therefore coverage limits should be adjusted to your business. 

Guiding Principles for Coverage Limits 

Some principles would be as follows: 

• Begin with a basic coverage which reacts to bodily injury and property damage claims due to product use. 
• Think about product recall or finished-product operations endorsements or separate limits in the event that your business might incur such expenses. 
• Check your yearly sales volume and user base: the greater the volume, the greater the potential exposure. 
• Discuss with Liberty Insurance professionals to customize the product liability coverage to business size, product types and risk appetite. 
  The idea is to not to under-insure (have a gap) or to over-insure (paying more than is needed) – smart balance is important. 
   

When to Revise and Change Your Coverage 

Under the following circumstances, you must review your product liability insurance: 

• In case of new product line or new market entry. 
• In re-organizing manufacturing or sourcing. 
• When the volumes of sales are large. 
• In case of new rules or certifications in the category of your products. 
• When contracts with downstream suppliers or retailers, which require increased coverage, are renewed. Periodic inspection keeps your business safe without causing any unwarranted expense. 

Key Benefits of Product Liability Insurance 

Protection Against Legal Defence Costs 

The defence costs covered by product liability coverage are one of the most practical advantages of the product liability cover. Although your business may end up winning a claim, the legal procedure may be time consuming and costly. Being insured implies that you are hedged on the financial side and your business is running. 

Coverage of Compensation Payments and Settlements 

Claims may result in payouts for injury or property damage caused by your product. An adequate policy means you’re not personally or corporately wiped out by one incident. 
Because product liability claims have the potential to be very large (see earlier) being insured means your business continuity is preserved. 

Recall or Remediation Support 

Although traditional product liability insurance focuses on bodily injury or property damage claims, many insurers (and Liberty Insurance) offer endorsements or separate policies addressing product recall or remediation costs. These add a further layer of protection when a product needs to be pulled or corrected after it goes to market. 

Strengthened Business Reputation 

When your business has a robust insurance programme including product liability coverage, you instill confidence in your supply chain partners, customers and regulators. That enhances your brand and positions you to win contracts that might require proof of coverage. 

Considerations When Selecting Product Liability Coverage 

Check What’s Included and What’s Not 

Not all product liability insurance policies are the same. You should scrutinise: 

• Whether “products-completed operations” exposure is included.
• Whether the policy covers all parties in the supply chain (manufacturers, importers, sellers).
• Any territorial limitations (which countries are covered).
• Whether recall costs or crisis management are included or need separate coverage.
• The definition of “product” under your policy (does it include software/hardware hybrid, accessories, etc). 
  Getting these right avoids nasty surprises later. 
   

Understand Exclusions and Conditions 

Typical exclusions might include: intentional wrongdoing, known defects not disclosed, war or terrorism, or manufacturing errors already known and not remedied. Also, some policies may include a batch clause which limits coverage to items from a specific production run.  

• The deductible per claim or per occurrence
• Whether claims-made or occurrence policy type
• Your obligations around product testing/quality assurance — insurers often expect you to maintain risk mitigation practices.  

Work With an Expert to Tailor Coverage 

Because your business and product profile are unique, it’s wise to work with Liberty Insurance’s skilled professionals who can design a product liability coverage plan that fits your size, risk level and growth ambitions. At Liberty, we emphasise a customised approach rather than “one-size-fits-all”. 

How to Mitigate Product Liability Risk as a Business 

While insurance is critical, risk mitigation remains the other half of the equation. Consider the following best practices: 

• Implement rigorous product testing, quality assurance and supplier audits.
• Ensure your product has clear instructions, warnings and labels — especially if there is a potential hazard.
• Keep thorough documentation of manufacturing processes, batch records, change management and quality control.
• Monitor customer feedback and field incidents, and act swiftly when issues emerge (you may prevent claims or reduce exposure).
• Make sure your contracts with suppliers/distributors address liability, indemnities and insurance requirements. 
  Combining proactive risk management with insurance gives you a strong, holistic defence. 
   

Why Choose Liberty Insurance for Your Product Liability Coverage 

At Liberty Insurance, we understand the complexities that product-supplying businesses face. Here’s how we support you: 

• We offer bespoke product liability insurance solutions tailored to your industry, product type and growth stage.
• Our team works with you to assess how much coverage you need, taking into account sales volume, product risk, distribution channels and other exposures.
• We help you integrate product liability coverage into your broader business liability insurance framework so that you’re protected from multiple angles.
• We partner with you proactively — not just at claim time, but during your product development and launch phases, helping you align risk mitigation practices with your coverage.
• With Liberty Insurance, you can focus on growing your business and supplying great products, while knowing you have the shield you need if things go wrong.

Summary 

Understanding what product liability insurance is essential for any business that supplies products. This type of coverage protects you against claims arising from bodily injury or property damage caused by your products. In contrast to general business liability insurance, product liability coverage focuses on the unique risks that product-suppliers face. 

Your business needs this protection because the legal and financial exposures are real and significant, even a minor defect or failure to warn can lead to large claims. Determining how much coverage you need depends on your product range, volume, distribution, risk profile and sales channels. The benefits of product liability insurance include defence costs coverage, compensation protection, recall support and enhanced reputation. 

When selecting coverage, it’s important to review what is included, understand exclusions, consider endorsements (like recall cover), and ensure the policy aligns with your business. Mitigating risk through strong quality practices complements your insurance. At Liberty Insurance, we specialise in custom-fitted solutions to meet your unique needs and help you move forward with confidence. 

Get Product Liability Coverage with Liberty Insurance 

If you’re ready to secure robust product liability coverage and ensure your business is protected, contact Liberty Insurance today to talk with our expert team. Get a customized quote and let us help you safeguard your product-supplying operations from unexpected exposure.