Whether you have a tiny business or a full-blown factory, product liability insurance is important.
Roger commented on my post on how to get cheap business insurance. It seems like the cost of insurance was going to stand in the way of him launching his business:
“‘It looks like the cost of product liability insurance is going to kill our startup. We planned to launch a new model airplane for kids in the spring of 2011, but after talking to an insurance broker about product liability insurance, I am not sure. He said that quotes for our product will probably come somewhere in the range of $5,000 to $25,000 per year. For a couple of guys starting a business with just their own pocket money, that is overwhelming. How did the BB gun ever get to market? You have a better chance of shooting your eye out with that than our airplane.”
Well, before you send your plane to the hangar for the duration, let’s see if we can’t find a few cheap product liability insurance alternatives for you and save your business.
1. My first recommendation is to speak to more than one insurance broker.
If your broker really believes in you and your product, she’ll look for a way to get coverage for you. Show your broker your business plan, what your small business is worth and how well you are financed. If your business plan looks strong enough, the insurance broker may work harder for you.
Brokers make about 10% (maximum) commission on the premiums you pay. You have to convince them that you’re going to be successful in order to get them to work and go to bat. If the premium is low and they think you’re going to be gone in a year or two, they won’t be motivated.
Neal’s Notes: If you have a home based business, don’t be lulled into thinking that your homeowner’s policy has you covered. Home based business needs to be especially careful when it comes to all it’s insurance needs.
2. Ask your broker if she has good contacts in specialty market insurance companies (or knows a broker who does).
These specialty insurers may have a better understanding of the true exposure they face and, as a result, offer you the coverage for a lower premium. They might be able to offer you product liability coverage via a commercial general liability policy.
3. If this doesn’t do the trick, you still have options to start your new business by expanding or amending your homeowner’s policy.
Contrary to public opinion, you can get insurance for your home-based business.
Let’s assume that you are going to launch the business by working out of the garage. You can try to get an endorsement on your homeowner’s insurance policy or possibly get a home business policy. If they provide the coverage, they will likely be cheaper than the product liability policy.
Of course, I’d strongly recommend that you consult a business attorney to make sure you understand the coverage being provided really handles the risk. What other ideas can you give Roger?
Thanks for the advice. We’re starting a new business and having a difficult time with product liability as well; we’re in the “health and beauty” category which seems to provide lots of opportunity for lawsuit. Do you think it’s absolutely necessary to go through a broker? Honestly, I’m wondering if it’s worth taking out their cut, when it may be possible for me to do the same job.
What do you think?
I would gather as much info as possible (from the brokers and others) and then, I’d ask the broker themselves what value they can add. If you are having trouble getting coverage at all then going direct may not even be possible.
Either way, learn as much as you can. Ask questions. Then decide. Let me know what you come up with. Also, you may want to check this post out.
Thanks, so far we found a guild that helps with insurance. We’re weighing the options of joining but we will definitely look at all of our options.
Hey thanks, Neal. I have already taken your advice on step #1 and contacted 2 other brokers. What I wonder though is if all 3 of them won’t end up sending our information to the same companies.
Hope to hear from some other readers who have been down this path.