What is Product Liability Insurance?

Updated on December 26, 2022
In this article
In this article

As a business owner, ensuring the safety of the products you offer is paramount. However, even with stringent quality controls, unforeseen incidents can occur. Product liability insurance acts as a safeguard, protecting your business from potential legal consequences if your products cause harm or damage.

What is Product Liability Insurance?

Product liability insurance protects businesses from the financial repercussions of lawsuits arising from injuries or damages caused by their products. Whether it’s an unintentional manufacturing flaw or unforeseen usage complications, this insurance helps cover legal fees and potential settlements, preserving a company’s assets and reputation. It’s a crucial consideration for businesses manufacturing, distributing, or retailing products that might pose risks.

What does product liability insurance cover?

This insurance typically encompasses:

  • Injuries or property damage due to product consumption, use, or handling.
  • Legal fees, court settlements, and judgments up to the policy’s specified limit.
  • Medical expenses from injuries caused by a defective product.
  • Recall-associated costs if a product is withdrawn from the market for safety reasons. Remember, coverage specifics can vary, so always consult your insurance policy or representative.

How much product liability insurance do I need?

Determining the adequate amount of coverage hinges on several factors:

  • Product type: High-risk products (e.g., medical devices) might necessitate more substantial coverage than low-risk ones.
  • Sales volume: Larger sales figures increase potential exposure, possibly requiring enhanced coverage.
  • Business size & location: Operating in multiple jurisdictions might impact liability and required coverage.
  • Claim history: Businesses with previous product liability claims might need increased coverage. Engage with an insurance expert to tailor coverage to your business needs.

Is product liability insurance required by law?

While product liability insurance is not universally mandated, specific rules and regulations vary across regions and industries. In the European Union, the Directive 85/374/EEC sets out the framework for product liability. This directive doesn’t require manufacturers to have product liability insurance, but it does hold producers liable for damages caused by defective products. As a result, many manufacturers in the EU opt for product liability insurance to protect against potential claims.

Moreover, individual EU member states might have additional stipulations or recommendations regarding product liability insurance, and it’s essential to be aware of national differences. Outside of legal frameworks, wholesalers or retailers in the EU might also insist on their suppliers having such insurance before doing business.

Regardless of legal requirements, investing in product liability insurance is a prudent business decision, shielding your enterprise from potential lawsuit-related financial setbacks. Always verify both EU-wide regulations and local laws in individual member states, as well as industry standards.

3 Benefits of Product Liability Insurance for Private Label Brands

Private label brands face unique challenges. By putting their name on products they might not manufacture directly, these brands expose themselves to potential risks associated with product defects or other issues. Product liability insurance becomes an invaluable asset in such a scenario. Here’s why:

1. Financial Security

  • Tailored Coverage for Private Labels: As a private label brand, you’re placing your trust in a third-party manufacturer. Any lapse in quality or unforeseen defects can result in costly lawsuits. Product liability insurance offers coverage tailored to the nuances of private label businesses, ensuring that if there’s a claim, the brand isn’t left facing insurmountable financial challenges.
  • Shield Against Unexpected Costs: Beyond legal fees and settlements, there can be other unforeseen costs associated with product recalls or remediation efforts. Insurance helps mitigate these unexpected financial burdens.

2. Reputation Maintenance

  • Brand Integrity: For private label brands, reputation is everything. A single defective product can tarnish the brand’s name, even if the fault lies with a third-party manufacturer. With product liability insurance, brands have the resources to manage and potentially resolve disputes more efficiently, minimizing damage to their public image.
  • Stakeholder Trust: Retailers, partners, and consumers need to trust your brand. Having insurance signals to them that you’re proactive about addressing potential issues and committed to delivering safe, quality products.

3. Peace of Mind

  • Focused Business Operations: Managing a private label brand comes with its own set of challenges, from marketing strategies to supplier relationships. Knowing that potential product mishaps won’t derail your financial stability allows you to concentrate on core business activities.
  • Risk Management: No matter how stringent your quality controls or how trusted your third-party manufacturers are, there’s always inherent risk. Product liability insurance acts as a safety net, ensuring that unforeseen product issues don’t spiral into larger business crises.

How to Obtain Product Liability Insurance

  1. Evaluate Your Needs: Gauge required product liability coverage based on your products and associated risks.
  2. Market Research: Collate and compare quotes from multiple insurers to secure optimal coverage at competitive rates.
  3. Peruse Policy Details: Review policy clauses to ensure they align with your business needs.
  4. Finalize Purchase: Once satisfied, acquire the policy and routinely review it for updates.

How Much Does Product Liability Insurance Cost on Average

Costs can fluctuate based on product type, sales volume, and desired coverage. Typically, small enterprises might spend between €500 and €1,000 annually on product liability insurance.

When to Acquire Product Liability Insurance

Securing product liability insurance is advisable when:

  • Dealing with products that could harm individuals or property (e.g., toys or automotive components).
  • Operating in high-risk sectors like pharmaceuticals.
  • Introducing a new product or entering unfamiliar markets with uncertain risks.
  • Following a product liability lawsuit or after receiving product-related customer complaints.


In an increasingly litigious world, businesses need robust protective measures against possible product liability lawsuits. Product liability insurance offers this shield, defending your finances, reputation, and granting peace of mind.

For those utilizing Wonnda for their production ventures, an added advantage is the automatic inclusion of product liability insurance with their purchase. This provision ensures you handle your products confidently, safeguarding your investment. Opt for Wonnda now and leverage this invaluable perk.

Create your next product line with Wonnda

Our platform lets you source, launch, and scale your product line with over 250 trusted European suppliers. So whether you’re looking to request products from our private label catalog of over 1,500 items or develop custom products from scratch, Wonnda has everything you need to get started. Best of all, it’s free to start today!

Set up your account in less than 3 minutes and begin your journey with Wonnda. Unlock endless possibilities for your business, bring new products to market and streamline your sourcing process from idea to launch on one single platform.

About the author
Martin Ditzel
Martin Ditzel is the co-founder of Wonnda and was born in Düsseldorf. He holds a BSc in General Management from EBS Universität and an MSc in Business Information from Rotterdam School of Management. He's a tech and business expert who's passionate about using technology to make a positive impact.
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