What is product liability insurance?
Product liability insurance helps cover your business against claims if your products have caused harm to people or property. It’s a type of business insurance that many organisations rely on, such as those that produce, sell or distribute goods in Australia or overseas.
Put simply, product liability insurance is designed to protect you against legal claims and any associated costs. It’s typically aimed at businesses such as manufacturers, retailers and wholesalers.
Business.gov.au recommends considering product liability insurance if your business makes, sells or supplies goods, even as part of a repair or service.
Product liability insurance often falls under a “general liability insurance”, which combines product and public liability into one policy. While public liability insurance generally applies to injuries or property damage caused by your business, product liability insurance specifically covers issues arising from products you’ve manufactured, sold or supplied.
What counts as a “product” under product liability insurance
A “product” refers to anything your business makes, sells or supplies that’s no longer in your possession or control. This can include:
- Items you’ve manufactured, assembled, produced, processed, repaired, or serviced goods you’ve sold, supplied or distributed.
- Any components, packaging or containers associated with those items.
It also covers situations where, under Australian law, your business is deemed to be the manufacturer. For example, if you import or supply goods under your own brand name.
What product liability insurance covers
Here’s what product liability insurance typically covers:
Legal liability
Compensation costs if someone is injured, becomes ill, or their property is damaged because of a product your business made, sold or supplied. This includes cases where a product is found to be faulty, defective or incorrectly labelled.
Legal costs
The legal expenses involved in investigating, defending or settling a product-related claim – even if your business is not found to be at fault.
Product liability insurance exclusions
Like any business insurance, product liability cover has certain exclusions and limitations. Here are some of the key ones:
- Product recalls: The cost of recalling or withdrawing faulty products from the market is not usually covered.
- Advertising liability: Claims related to misleading advertising or defamation usually fall under an inclusion in a public liability policy, known as “advertising liability insurance”.
- Employers liability: Injuries to employees are typically covered by workers compensation, not product liability insurance.
- Vehicles: Damages or injury by motor vehicles is generally excluded and covered under commercial motor insurance.
- Professional duty: Claims arising from professional advice or services are excluded – that’s what professional indemnity insurance is for.
- Fines, penalties and punitive damages: Insurers won’t cover criminal fines, penalties or court-ordered punitive damages.
- Faulty workmanship: If damage occurs because of poor workmanship rather than a defective product, it typically won’t be covered.
- Contractual liability: If your business agrees in a contract to take extra responsibility for something going wrong, product liability usually won’t cover it.
Product liability insurance cost
The cost of product liability insurance can vary significantly depending on several factors, including:
Nature of your products
Insurers assess risk based on what you sell. Products that pose a higher risk of injury or damage – such as electrical goods, food or children’s toys – generally attract higher premiums than low-risk items like clothing or stationery.
Volume of goods sold or moved
The more products you manufacture, sell or distribute, the higher your exposure to potential claims. Larger production or sales volumes may influence your quote.
Where and how you operate
Insurers will consider whether your business operates in Australia only or exports goods overseas. The number of locations can also make a difference to the price you are quoted.
Time in business
New businesses with minimal trading history may attract a higher cost, while established businesses with well-documented operations often make it easier for insurers to assess risk and may benefit from lower premiums.
Your position in the supply chain
Whether you’re a manufacturer, wholesaler, importer or retailer affects your level of responsibility. Manufacturers and importers usually face greater liability risks than retailers, and this may be reflected in the cost of cover.
Level of cover needed
Your chosen limit of liability (i.e. level of cover – $1 million vs $20 million) directly impacts your premium. Higher coverage limits provide greater protection but come with increased costs.
Policy excess amount
A higher excess – the amount you pay if you make a claim – can lower your premium. It just means you’ll pay more out of pocket in the event of a claim. Policy excess amounts are typically $500, $750 or $1,000.
Your claims history
A clean claims record can help reduce your premiums. On the other hand, if you’ve had previous product-related claims, insurers may view your business as higher risk and charge more.
Do you need product liability insurance?
It largely depends on the nature of your business and whether it revolves around products. If your business manufactures, sells, imports or distributes goods, product liability insurance is generally essential. It helps protect you if a product you supply causes injury, illness or property damage.
If your business doesn’t handle physical products – for instance, if you provide professional services or advice – public liability or professional indemnity insurance or another type of cover may be more suitable.
Product liability insurance is often included as part of a public liability policy, though some insurers offer it as a standalone option. The specifics of what’s covered, excluded or limited will be outlined in the insurer’s product disclosure statement (PDS), which you should review carefully before purchasing.
If you’re unsure whether product liability insurance applies to your business, consider speaking with a licensed insurance broker or financial advisor. They can help assess your risks, explain your options and ensure you’re not under- or over-insured.
How to get product liability insurance
Each insurer has its own process, but generally, getting product liability insurance involves a few simple steps:
Enter your business type
Start by providing details about your occupation, industry or business activity. Insurers use this information to assess the level of risk associated with the products you make, sell or distribute.
Choose your level of cover
Select the amount of liability cover you need – for example, $1 million, $5 million or $20 million. The right amount depends on the type of products you deal with, your business size, and any contractual or regulatory requirements.
Provide business details
You’ll then be asked to share key information about your business, such as how long you’ve been operating, your annual turnover, number of employees, and where you sell your products (locally or overseas). These details help the insurer tailor your policy and premium.
Compare quotes
Once you’ve entered your details, you’ll get a personalised quote. It’s worth comparing options from different insurers to ensure you’re getting the best value and coverage for your needs.
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