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Like many businesses in Australia, you strive to create quality products for your customers although, sometimes faults in products have the potential to cause injury and damage to your customers.

Product liability insurance* could help minimise the legal costs your business may encounter.

What is product liability insurance?

Product liability insurance is designed to protect businesses in the instance that their products cause injury to customers or damage to their property.

This type of liability cover could protect the business against costs associated with legal fees that may arise. It’s generally an important consideration for companies that are involved in providing products to the public including manufacturers, wholesalers and retailers.

These policies are generally part of a public liability insurance policy.

How does product liability insurance work?

Product liability insurance works as a safeguard for Australian business owners since it can help cover various instances where a product could cause damage or harm. If a customer makes a product liability claim for injury or loss caused by your business’s product, your product liability policy may step in to cover the cost of the claim.

For businesses, product liability insurance can cover various situations where a product can negatively impact customers and cause financial loss to a business. These can include:

  • Personal injury/illness when customers are harmed because of your product. For example, malfunctions causing injuries and food contamination.
  • Property damage caused to a third party’s property by your product.

As with any type of insurance, it’s important to check your Product Disclosure Statement (PDS) for the policy wording to find out what is and isn’t covered.

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What doesn’t product liability insurance cover?

Like any insurance product, there are some cases where your business may not be covered. The following are some common exclusions in product liability insurance policies:

  • Blatant deception about your product before getting insurance. If you lie about elements of your product to your insurer, you’re likely in breach of your policy.
  • Undocumented changes in the design of your product. If you make significant changes to your product without notifying your insurance provider, your policy may be void.
  • Bad advice regarding the product given by you or your employees. This includes safe ways to use the product. If the advice pertains to misusing the product, you may not be covered for the consequent damages.
  • Products that produce or include asbestos. Asbestos is a hazardous chemical, so policies are unlikely to cover it.
  • Costs associated with recalling your product. However, this may be offered by your provider as an optional extra instead.

Do I need product liability insurance?

Whether you are a sole trader, manufacturer, wholesaler or retailer, there is still a risk that your product could cause harm. Product liability insurance is a good idea to consider for every business that provides products for public use. Mistakes happen and product liability insurance also covers more than a product breaking or malfunctioning.

It’s important to consider what products you make or sell and whether product liability insurance is right for you.

Frequently asked questions

How much does product liability insurance cost?

As no two businesses are the same, premiums do vary. It’s difficult to determine a specific cost for product liability insurance since there’s a variety of influencing factors that can affect your premium, including:

  • Type. The type of product your business manufactures or sells will impact your premium. If you make products that could be determined as high risk, your insurance premiums may be higher.
  • Size. The size of your business can also be a factor in the price of your premium. A small business may pay less since they may be distributing less product.
  • Revenue. Companies with significant revenue may, in turn, have a higher premium to pay than smaller businesses because high revenue suggests higher risk exposure.

What’s the difference between public and product liability insurance?

The two often go hand in hand, with Product Liability included as part of a Public Liability insurance policy, but provide cover for very different things. Product liability insurance covers companies when their product causes harm or damage to a third party. Public liability insurance covers companies when they fail in their duty of care to the public.

To help explain this further, let’s use an example.

Product liability insurance: Linda sells homemade soaps but hasn’t included one of the ingredients in her product’s labels. One of her customers is allergic to that ingredient and ends up in the hospital. Because Linda had product liability insurance, she may be covered for the legal fees and compensation that results from her customer’s claim against her.

Public liability insurance: Linda opens a shop for her soaps but fails to properly secure the shelving she uses to display her products. The shelving collapses and injures one of her customers, whose claim may be covered by Linda’s public liability policy.

Is product liability insurance compulsory?

Product liability insurance isn’t required by law however, that doesn’t mean you shouldn’t consider taking out a policy when insuring your business. Product liability insurance can help protect your business from legal action if someone pursues a claim against you, especially since legal costs can climb very quickly.

Should I consider any other insurance for my business?

Along with product liability insurance, your business could benefit from other types of business insurance, including:

  • Public liability,* which is designed to protect your business if a customer, supplier or a member of the public brings a claim against you for injury or property damage as a result of your negligent business activities.
  • Management liability,* which is designed to protect both the business and its directors/managers for claims of wrongful acts in the management of the business.
  • Professional indemnity,* which is designed to respond to claims against your business for losses caused by actual or alleged negligent acts or omissions committed in the course of your professional service or advice.

How to get product liability insurance

Whether you’re starting a new business or just reviewing your current cover, our comparison service is a great place to start. Just enter your profession and some details about your business to compare a range of policies and get a quote – all at no cost to you!

*As with any insurance, coverage is subject to the terms, conditions and exclusions outlined in your policy document. The information provided on this webpage is general only and should not be relied upon as advice.

Adrian Taylor, General Manager

Meet our Business Insurance expert, Adrian Taylor

As our Executive General Manager of General Insurance, Adrian Taylor wants businesses to have the freedom to build and innovate new products with the added protection that product liability insurance provides.

Adrian has over 13 years’ experience in the financial services industry. He helps review general insurance content on Compare the Market to ensure it accurately breaks down complex insurance topics.

Adrian’s top business insurance tips

  • Check your policy’s limits. Most policies will have a monetary limit on what they will pay out in claims, so make sure that this will be enough for your business.
  • Get cover for discontinued products as well. Even if your business no longer sells or makes these products, customers may still have them, which means there is still potential for something to go wrong.
  • Make sure your imported products are up to Australian standards. If they don’t, you might find that insurers won’t cover them.
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