Product liability insurance is protective coverage that prevents manufacturers and sellers from prosecution due to damages caused by the use of a given product. In the event that the manufacturer, distributor, or merchant that sold the product is sued, the insurance handles the payment of any amount awarded by the courts, thus averting financial loss to the defendant. Products liability insurance is considered a necessity for just about any type of business engaged in the task of manufacturing.
There are provisions and limitations that apply to just about any kind of product liability insurance. Policies for small businesses will include coverage that is similar to that extended to large corporations, although the amount of coverage that the smaller business can receive is usually much less. There is also some variance based on industry type and the amount of risk involved with the products made available to consumers. For example, food product liability insurance is likely to be more comprehensive than that for companies that produce bedding or fabric.
The current insurance laws and regulations in the country where the business is headquartered also help to define the scope of this type of insurance insurance. A product liability insurance broker can advise the business as to what types of coverage and the associated amounts are currently available within the guidelines established by government agencies. In some countries, the standards and regulations that apply to this sort of insurance are very broad; other nations have very specific regulations in terms of qualifying for this type of coverage, as well as the amount that can be charged by the provider for the coverage.
A qualified broker will not simply write a policy at the behest of a company. Instead, he or she will evaluate the nature and volume of the business, including the types of products that are sold through various outlets. Once the business and its products are evaluated and classified according to the standards of the insurance provider, a quotation on the coverage, including the premium and the payment terms, is extended to the business. As long as the business complies with the terms that govern the contract and makes the scheduled premium payments, the insurance is likely to remain in effect.
As with most types of insurance coverage, manufacturers and merchants hope that they never have occasion to use their product liability coverage. However, should a consumer file a legal action that is deemed reasonable and applicable by a court of law, the insurance will make it possible to settle the claim quickly. In many cases, product liability insurance can make the difference between the dissolution and bankruptcy of the company, or the opportunity to resolve the litigation, make any appropriate changes in the product, and continue to operate.