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Why All Amazon Sellers Need to Have Product Liability Insurance

by Dirk Llorens Aug. 20, 2021

Amazon has a lot of brilliant positives and opportunities for sellers, but there are always some risks along the way, too. If you are selling a product that could carry some risk for customers, such as something they eat or drink, or a product that could be hazardous, you’ll probably already know about liability. However, it’s not just sellers of obviously harmful products that need to be aware.

In this guide, we explain why all Amazon sellers need product liability insurance, with no exceptions. Even if you assume that your product can’t possibly be harmful for anyone, it simply is not a risk worth taking.


An Example Scenario


The potential issues with a product aren’t always obvious. Plus, people will try their luck when it comes to any lawsuit for a defective product. If you don’t have insurance, you run the risk.

Let’s say there is a fire within someone’s home and they aren’t sure what caused it. Did you know that virtually any product with a battery can be a fire risk? It is possible that the customer could try to blame your product and take legal action against you, the seller.

Another example could be a gardening tool that injures somebody, or even a pair of shoes that breaks and causes a fall.

Amazon does not automatically assume responsibility for the product because it is being sold on their platform. Similarly, it is easy to assume that if you didn’t manufacture the product, and you just imported it, you could be absolved of blame. Actually, lawyers are likely to try to sue each of the companies involved in the supply chain in the hope they can be successful.

Even if they are not successful, it can be a stressful time, especially if you don’t have insurance.


Do You Have to Get Insurance to Sell on Amazon?


Whether you are legally obliged to get a product liability insurance policy depends on a number of factors. It isn’t as simple as a “yes” or “no” answer, but in the majority of situations the safest option is to cover your product.

Amazon sets out in their terms that all Pro Merchants have to have liability insurance on their product. When you sign up to sell as a Pro Merchant, the Terms of Service you agree to outline this requirement. The policy has to cover you, but also cover Amazon if there is a claim.

Within your Seller Central account on Amazon , you can find the exact terms you need to follow. As discussed, every Pro Merchant has to provide proof of a Commercial General Liability policy. It needs to give a hefty level of cover, too. The current smallprint in the TOS explains:

“This insurance, obtained at the merchant's expense, shall cover up to $1,000,000 per occurrence and in the aggregate and must include product liability, bodily injury, or personal injury, property damage, and other requirements as stated in the Amazon Services Business Solutions Agreement. The insurance must indicate that "Amazon.com, Inc., and its affiliates and assignees" are added as additional insureds.”

Whether you are selling on Amazon, your own website, or elsewhere online, the Amazon Services Business Solutions Agreement isn’t the only documentation you need to consider. In law, there are thresholds that you may meet that require you to get insured. In the US, if you sell over $10,000 worth of products in three consecutive months, it is the law to get liability insurance.

Getting yourself insured isn’t just about doing what is right, or what is legally required. It’s about making sure that you have peace of mind. If anything should happen, or any consumer wants to make a claim, you know that it won’t be you, or your company, that have to deal with it alone.


Getting Your Insurance Policy


There are plenty of insurers who are happy to work with Amazon sellers, and even comparison platforms online. However, it is always best to make sure you do your research and only work with an insurer that has good reviews.

On top of that, you need a policy that covers certain things. You need to have liability coverage of a minimum of $1 million per occurrence, and $1 million in general aggregate.

You also need the policy to cover your company but also have an “Additional insured”” clause, meaning that you also cover Amazon as the selling platform.

Text such as "Amazon.com, Inc., its affiliates and assignees are additional insureds, as their interests may appear" need to be covered.


How Much Does An Insurance Policy Cost?


When you start selling on Amazon, there are plenty of costs to consider. If you hadn’t already thought about Amazon seller liability then this can add to a growing list. However, the policy may not be a huge expense.

Unfortunately, nobody can give you too much more of a guideline on the price, besides the insurers. The policy will be calculated by an algorithm which takes on board things like how much you’re selling, what types of products, and what those products are.

If you’re selling something like a supplement that people ingest, your risk is going to be higher compared to selling something like a decorative item for the home. All of this is considered by the insurer. There are some comparison tools to help you to get the best price just like with your car insurance.

For goods that aren’t seen as particularly risky or hazardous, it is normal for sellers who are selling under $1million worth per annum to spend less than $1,000 per year on their insurance. Remember, though, cheapest isn’t necessarily best.


Conclusion – Why an Insurance Policy is a Good Move


No matter what you are selling, there is always a slim chance that your product could face a lawsuit. Without insurance, this could leave you in fear of your business even being able to continue trading. Having a policy to protect you can help you to defend yourself, and your product, and not have to produce the money alone if you are found to be liable.