Product Liability Insurance for Small Businesses (2026)

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Product liability insurance helps protect businesses when customers claim a product caused injury or property damage.

It exists because defective products can expose businesses to expensive lawsuits. In 1944, a Coca-Cola bottle exploded in Gladys Escola’s hand as she stocked shelves, giving her a severe five-inch cut. Her lawsuit against Coca-Cola Bottling Co. shaped modern US product liability laws. 

This guide covers the essentials of product liability insurance and how to protect your business. 

What is product liability insurance?

Product liability insurance covers claims that a product your business made, distributed, or sold caused bodily injury or property damage. It may pay legal defense costs, settlements, or judgments, subject to the policy’s terms.

This coverage is often included in a commercial general liability policy or purchased separately. Businesses with greater product exposure may need a standalone policy or higher coverage limits.

The table below shows how product liability coverage compares with general liability insurance.

How much does product liability insurance cost?

According to Insureon data updated in April 2026, small businesses pay an average of $45 per month, or about $538 per year, for general liability insurance. 

Among its customers, 22% pay less than $30 per month and 41% pay between $30 and $60.

Four main factors determine the cost:

• Industry. Industries with more frequent or costly claims pay higher rates.
• Product risk. Products that can cause serious harm cost more to insure.
• Annual sales. Higher sales increase the insurer’s exposure.
• Products made or sold. The type and quantity of products your business manufactures, distributes or sells affects the likelihood and severity of claims.

Coverage limits and claims history also influence the final quote.

Higher-risk businesses generally pay higher premiums. Construction businesses average about $90 per month, compared with approximately $46 for ecommerce retailers. These figures cover general liability policies that include product liability coverage. Standalone policies are less common and priced according to the business’s specific exposure.

Insureon reports that 85% of its customers choose a $1 million per-occurrence limit and a $2 million aggregate limit. This means the insurer may pay up to $1 million for one covered claim and up to $2 million across all covered claims during the policy period.

How does product liability insurance work?

When someone files a covered product liability claim, the insurer evaluates the claim against the policy's terms, exclusions, coverage limits and the circumstances of the incident. 

Customer misuse does not automatically establish liability or coverage.

Insurers typically include product liability coverage in a commercial general liability policy. Within that policy, it is commonly called products-completed operations coverage:

• Products coverage applies after a product has been sold, delivered, or distributed.
• Completed operations coverage applies after a service or installation has been finished.

Other parts of the general liability policy cover incidents that occur at the business premises or while work is still underway.

For covered claims, the insurer may pay legal defense costs, settlements, medical expenses, or repairs to third-party property, subject to the policy’s limits.

What does product liability insurance cover?

Product liability insurance typically covers four types of claims involving products your business makes, distributes, or sells: 

• Design defects. A flaw makes the product unsafe as designed.
• Manufacturing defects. An error occurs during production.
• Labeling or warning defects. Instructions fail to disclose a product risk.
• Strict liability. The claimant does not have to prove negligence to pursue a claim.

Depending on the policy, coverage can pay for:

• Legal defense. Attorney fees and other litigation expenses.
• Medical expenses. Covered injury- or illness-related costs.
• Property damage. Repair or replacement of third-party property.
• Settlements or judgments. Covered amounts the business is legally obligated to pay.

Legal defense accounts for a substantial share of product liability costs. The Insurance Information Institute (III) reports that insurers incurred $768.9 million in product liability defense and cost-containment expenses in 2024. That equaled 33.6% of incurred losses.

Product liability insurance generally does not cover:

• Product recalls. Recall costs usually require separate product recall insurance. Shopify merchants can also review the platform’s consumer protection and product recall guidance to understand their responsibilities if a recalled product has been sold.
• Software or service errors. Claims involving financial loss from faulty technology generally require technology errors and omissions insurance.
• Employee injuries. Workers’ compensation applies to work-related injuries and lost wages.
• Commercial vehicle accidents. Commercial auto insurance responds to these claims.
• Your business property. Commercial property insurance insures against damage to property your business owns.
• Injuries on your premises. Other sections of a general liability policy address these claims.

Who needs product liability insurance?

Any business that manufactures, imports, distributes, sells, installs, or repairs physical products may face a product liability claim and benefit from business insurance. Liability can extend to multiple businesses in the distribution chain, not only the original manufacturer.

Online and marketplace sellers face the same types of product liability claims as brick-and-mortar retailers.US ecommerce sales reached $326.7 billion in the first quarter of 2026, up 9.8% from the previous year. In 2020, aCalifornia appeals court ruled that Amazon could be held strictly liable for a defective third-party product that it stored and shipped.

Businesses throughout the product supply chain may need coverage, including:

• Manufacturers. Claims may arise from design or production defects.
• Importers and distributors. These businesses may be named in claims involving products they place into the supply chain.
• Retailers. Selling a defective product can create liability even when another company manufactured it.
• Online and marketplace sellers. Operating online or through a marketplace does not remove product liability exposure.
• Food businesses. Coverage may apply to foodborne illness or allergic reactions. Businesses must follow applicable food-safety and allergen labeling requirements.
• Beauty and cosmetology businesses. Claims may involve reactions or injuries caused by cosmetic products. Companies subject to the Modernization of Cosmetics Regulation Act of 2022 (MoCRA) may have US Food and Drug Administration (FDA) facility-registration and product listing obligations.
• Construction and repair businesses. Products-completed operations coverage may apply when finished installation or repair work later causes injury or property damage.
• Regulated-product businesses. These businesses must comply with the regulations for their product category. For example, children’s products may require third party testing and certification. Businesses that sell consumer products should also understand the requirements enforced by the US Consumer Product Safety Commission (CPSC), which oversees the safety of consumer products.

Types of claims covered by product liability insurance

Understanding the different types of claims is crucial for choosing the right business insurance coverage. The main types include: 

• Defective manufacturing claims
• Design defect claims
• Inadequate instructions or warnings
• Breach of warranty claims
• Strict liability claims
• Negligence claims

Defective manufacturing claims

Manufacturing defects occur when a product doesn’t meet its specifications. These claims focus on flaws in specific products rather than the overall design. Usually present in a small percentage of items, examples include:

• Food products contaminated with foreign substances during production
• A bicycle with a cracked frame due to improper welding

Customers must prove the product was defective when it left the manufacturer’s control. 

Design defect claims

These claims argue that a product’s design is inherently dangerous or defective, making the entire product line potentially hazardous for consumers, even if manufactured correctly. For example, children’s toys with small parts that pose choking hazards. Design defect claims can lead to large-scale product recalls and significant legal liabilities. 

Inadequate instructions or warnings

These claims arise when a properly manufactured and designed product is considered defective because it lacks clear instructions or warnings about its use. For instance, if you sell power tools without proper safety precautions or operational guidelines, you could be liable for injuries caused by foreseeable misuse.

Breach of warranty claims

A breach of warranty claim alleges that a product failed to meet a promise made about it or a warranty imposed by law.

Two types of warranties form the basis of a claim:

• Express warranties. These arise from a factual promises, product descriptions, samples, or other statements that form part of the sale. 
• Implied warranties. These arise by law in certain sales. Under Section 2-314 of the Uniform Commercial Code, merchantable goods must be “fit for the ordinary purposes for which such goods are used,” unless the warranty is excluded or modified.

Product liability insurance may respond when an alleged breach results in bodily injury or damage to third-party property. It generally does not pay the ordinary cost of repairing or replacing the defective product itself, which is usually treated as a business or warranty obligation.

Strict liability claims

Under strict liability, manufacturers, and sellers are responsible for harm caused by defective products, regardless of whether they exercised reasonable care or the consumer was negligent. Many US states have adopted strict liability for product defects.

Customers can sue for manufacturing, design, or warning defects under strict liability without proving manufacturer negligence. 

Negligence claims

Negligence claims arise when manufacturers, distributors, or sellers fail to exercise reasonable care in designing, producing, or selling a product. This falls under the duty of care, a legal obligation to protect customers. It includes the duty to:

• Design and manufacture safe products
• Adequately test products before release 
• Provider proper warnings and instructions
• Inspect for defects and maintain quality control
• Stay informed about product safety and potential hazards

Customers may be eligible for compensation if they can prove that failure caused their injuries.

The importance of product liability insurance for small businesses

A product liability claim can create costs far beyond replacing the product for small businesses. A 2025 analysis from the Casualty Actuarial Society and III estimated that rising claim costs added $4.6 billion to $4.8 billion to product liability losses and defense expenses from 2015 through 2024. 

Suppose a bakery sells packaged cookies containing an undeclared allergen. A customer is hospitalized and files a claim. If the claim is covered, the insurer handles covered defense costs and may pay a settlement or judgment up to the policy limits. Recall expenses would still require separate recall coverage.

Product liability insurance doesn't eliminate the risk of being sued, but it can reduce the financial impact of covered claims. Review the policy’s exclusions and limits with a licensed insurance professional.

How to get product liability insurance

Before requesting quotes, list the products you sell and every country or state where you sell them. Insurers use this information to calculate premiums and determine policy terms.

Then check your current coverage and compare your options:

1. Review your existing insurance. Check whether your general liability policy includes products-completed operations coverage. Confirm that it applies to every product you sell.
2. Check supplier coverage. Resellers and dropshippers may already be named as an additional insured under a supplier’s or manufacturer’s policy. Request the endorsement and verify its limits before buying separate coverage. A certificate of insurance alone does not make your business an additional insured.
3. Find licensed providers. Request quotes directly from insurers or use an independent broker with experience in your product category. The National Association of Insurance Commissioners, (NAIC) Consumer Insurance Search lets you verify company licenses, financial health, and complaints.
4. Compare policy terms. Use the same limits and deductibles for each quote. Review coverage limits, exclusions, coverage territory, and treatment of legal defense costs.
5. Choose coverage limits. Account for the potential severity of an injury claim. Contractual requirements from retailers or marketplaces may also set minimum limits.
6. Consider a BOP. A business owner’s policy (BOP) typically combines general liability, commercial property, and business interruption coverage. Workers’ compensation is usually purchased separately.
7. Request changes before signing. Ask whether the insurer can revise exclusions, endorsements, or deductibles. Confirm the final terms in the policy documents.