How to Insure a Product You're Selling

Calculate product liability coverage, choose policy types, and set deductibles based on your revenue and risk exposure.

1. Calculate your minimum coverage amount. Start with 2x annual revenue for low-risk products (software, books, apparel) or 5x for higher-risk items (electronics, tools, supplements). A $500K revenue business selling kitchen gadgets needs $1-2.5M in coverage. Add your largest customer concentration — if one client represents 30% of sales, factor that exposure.
2. Choose between occurrence and claims-made policies. Occurrence policies cover incidents that happen during the policy period, even if claims come years later. Claims-made policies only cover claims filed while the policy is active. Occurrence costs 15-25% more but eliminates tail coverage gaps when you switch carriers.
3. Set your deductible based on cash flow. Higher deductibles cut premiums 20-40% but increase out-of-pocket exposure. Use 1-3% of annual revenue as your deductible ceiling. A $1M revenue business should cap deductibles at $10K-30K to avoid cash flow shocks from multiple claims.
4. Bundle with general liability or buy standalone. General liability policies include basic product coverage but cap it at the overall policy limit. Standalone product liability gives dedicated limits and costs 20-30% less per dollar of coverage. If product sales exceed 50% of revenue, buy standalone.
5. Factor in recall coverage separately. Standard product liability excludes recall costs — advertising, shipping, disposal, lost profits. Recall coverage adds 10-25% to premiums but covers expenses that can exceed the original claim. Essential for food, children's products, or anything with safety certifications.
6. Update coverage when revenue grows 25%. Review limits annually and trigger updates when revenue increases 25% or you launch new product categories. Underinsurance penalties can reduce claim payments proportionally. A 50% coverage gap means the carrier pays only 50% of valid claims.