Product liability insurance – How does it work?
A product liability insurance is a policy that protects the insured in the remote event that a product that they deal with causes physical harm to a person or damages property. Businesses that deal with the manufacturing, distribution, retailing, or repairing of products would benefit from a product liability insurance.
In fact, a product liability insurance would be a prerequisite to do business mainly because of two reasons. The first one is that research data has shown that a significant number of lawsuits have been won by people who have filed complaints against companies for their products. These lawsuits could result in a lot of unnecessary expenditure for the business in the form of payouts. Secondly, most collaborators in a particular business network might hesitate to do business unless there is authentic proof of a product liability insurance.
Whatever the kind of product your against deals with, there are risks involved, and claims are inevitable. There will always be one dissatisfied customer who would want to take action and that will be an expensive cost for any business to handle, particularly for small ones. Moreover, defending against any lawsuit will involve money, but a product liability suit especially will prove to be a costly one.
Depending on the level of danger your products possess, the cost of insurance premiums you pay would vary. It is directly proportional, that is, the riskier the product, the higher the premium charged. However, other factors determine the premium amount too, such as the volume of distribution and marketing associated with the products, and the safety measures undertaken to prevent any mishaps in its handling and use. For example, electrical or surgical instruments are riskier and will have a higher premium for the companies that handle them rather than those dealing with cotton towels or paper plates.
A product liability insurance helps companies pass on the charges and the monetary penalty to a third party, i.e., the insurance company. It is not only an important insurance policy that all business enterprises should have but also one of the easiest to pay for to guard your company from harm.