May 15, 2020 / by Emma Jones

So, you’ve joined the business world and have already come up with smart strategies regarding your location, equipment, costs, supply and profits. You’ve invested quite a lot of money and effort, and now you’re thinking about insurance as a way to protect your business against a variety of risks. After all, being prepared for everything that may come is key to success. There are several types of business insurance Australian companies can get. Some forms are compulsory and others are optional, like product liability insurance.

What Is Product Liability Insurance?


This type of insurance is designed to provide protection to businesses and their employees from potential claims from third parties (consumers) in case that their products or services cause bodily injury, death, property damage, or nervous shock such as emotional distress or psychiatric illness. The product may refer to a variety of goods like food, medicines, appliances and clothing. A common policy definition of the term “product” is any item that has been manufactured, constructed, erected, assembled, installed, grown, extracted, altered, modified, repaired, labelled, handled, supplied, sold, re-supplied, imported or exported by you, or on your behalf. The injured third party that can file a claim or sue may be the buyer of the product, the user or even a bystander.

Do I Need Product Liability Insurance?


Even though it’s not compulsory to get product liability insurance Australia businesses sell, supply or delivers goods of any kind, should consider having a comprehensive policy in place. The same also goes for businesses that repair products. Under the Australian Consumer Law (ACL), every company is responsible to ensure that the products they sell or modify are safe and comply with Australian Standards. If the products you sell or make available experience defects that lead to property damage, injury or death, the affected individual/s can file a claim and seek compensation.

Regardless of how careful you are in inspecting the state of the goods you work with, accidents can still happen and cannot be 100% prevented. Even though the chance of something bad happening is usually slim, if it does, the cost you could be liable for is likely to be very high. Especially if the faulty product causes serious damage or death.

Compensation payment for the claim isn’t the only financial repercussion you’ll face. Once a claim is filed against you, it’s the start of a long and complex judicial process. And this process will require you to hire defence lawyers which can be very expensive. So, once you look at the bigger picture and factor in the additional legal expenses too, even a single claim against you can spell disaster for the future of your business.

What Does Product Liability Insurance Not Cover?


When considering getting product liability insurance Australia business owners need to know that it won’t provide protection against all claims. For instance, if one of your customers slips and falls while on your premises, your product liability policy won’t be able to provide protection. In this case, a public liability insurance policy can cover the expenses. So simply put, your product liability insurance won’t provide coverage that’s found under any other type of policy.

How Much Does Product Liability Insurance Cost?

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The rate you’ll be charged for your coverage will be calculated according to the nature of your product. For instance, products that are made of hazardous materials or chemicals are generally the most expensive to insure. Your annual sales rate will also affect the total sum you need to pay for your insurance. Then, there’s also the fact that different brokers can offer different rates. That being said, it’s advisable to ask the broker to give you a quote so that you can have an idea of how much the insurance will end up costing you.

Helpful Advice When Signing Up for a Product Liability Policy


Before you hire an insurance broker and sign up for a product liability policy, there are a few things to have in mind. Like for instance:

  • Your insurance broker needs to be regularly informed about all business activities. If your activities change during the year, you will need to disclose this with your broker. In the event of a claim against you, undisclosed activities can badly impact the outcome.
  • When calculating the premium, sales will be a crucial factor. That being said, make sure to disclose your sales volume accurately or claims payments may be affected.
  • If your business works with sub-contractors, get informed whether the policy will also apply to work they perform under your direction and also if they get injured on site.
  • Some policies may have exclusions. So, make sure to read and analyse the policy wording in detail before signing up. Examples of some common exclusions are: product recall, faulty workmanship and contractual liability.
  • If you import any products into Australia, for insurance purposes, you will be the one deemed the manufacturer.