The Money Mustache Community
Learning, Sharing, and Teaching => Entrepreneurship => Topic started by: mschaus on April 15, 2021, 09:37:26 PM
-
On my blog I have a description of how to build a contraption (to tow a bike with another bike), including a long list of parts. For an individual to procure all the odds and ends is inefficient due to shipping and quantities (only need 6 out of a box of 100 bolts, for example). Some people have expressed interest in buying a pre-organized kit of parts from me.
I wouldn’t be selling a final product, just a box of nuts, bolts, aluminum channel, and hardware. Would I have liability exposure in that case? I can’t imagine I’d sell more than 10 kits a year, and it would be to DIY cycling enthusiasts.
What do you guys think? Or perhaps, What is the easiest way to get product liability insurance?
-
Generally given the litigious nature of our society, I think it doesn’t hurt to at least look into it and in some cases it’s definitely needed to avoid bigger issues in case something does go wrong.
You could look into business liability insurance and see if that would cover liability related to the kit you plan to sell. Usually those are not that expensive but varies depending on the liability limits and coverages you need.
An independent insurance broker should be able to advise you on what coverage, if any, might be appropriate and get you quotes from different providers. There are also some online business insurance brokers. I used one before switching to a local broker due to changing business needs and they were fine for getting basic coverage.
-
Given the small number you expect to sell I would think if you have a good umbrella policy it should be covered and would have a better cost/benefit than a business liability policy. A good insurance agent should be able to help you determine if this would be covered or not.
Although you are not selling a final product I believe you could have liability exposure if the products you sell could be determined to be defective prior to assembly.
-
I've got 15 years experience in insurance, primarily in liability insurance for businesses.
You can't just buy an umbrella policy by itself, it needs to sit over primary policies (generally, a business owner's policy for small businesses, and maybe auto or workers comp/employers liability). It's the same reason you can't just buy a personal umbrella policy, you have to buy the homeowner's and auto policies first.
Business policies are pretty cheap, especially if you're not doing a lot of sales and don't have a lot of inventory. There are a ton of carriers trying to get into the "micro" space right now, so I'd recommend reaching out to an independent insurance agent to help you find one. An independent agent is one that works with many different carriers, so they can shop around for you, as opposed to agents like State Farm/Progressive/Allstate that only work with one carrier.
If you are going to be retailing supplies from someone else, you may want to enter into a vendors agreement with them that would provide you with additional insured status for liability from their product. This wouldn't help you with your own product liability (labelling, kit instructions, etc.) but is generally a good practice, and pretty common for retailers.
Whether or not you want to buy an umbrella policy over your businessowners policy is really a question of risk appetite. You'll have more coverage in case your product seriously hurts someone, but a lot of small businesses have decided that if they get sued for more than the standard $1,000,000 occurrence/$2,000,000 aggregate limits, they'll just close up shop. And the vast, vast majority of small businesses don't get sued. Insurance companies make a TON of money on liability insurance, and umbrella coverage is the most profitable, which means that as a policyholder it's less likely to be "worth it" for you. But maybe the peace of mind is? It's really up to you.
Feel free to DM me with any other questions.
-
I worked in both legal and insurance professions. Yes.
-
I've got 15 years experience in insurance, primarily in liability insurance for businesses.
You can't just buy an umbrella policy by itself, it needs to sit over primary policies (generally, a business owner's policy for small businesses, and maybe auto or workers comp/employers liability). It's the same reason you can't just buy a personal umbrella policy, you have to buy the homeowner's and auto policies first.
Business policies are pretty cheap, especially if you're not doing a lot of sales and don't have a lot of inventory. There are a ton of carriers trying to get into the "micro" space right now, so I'd recommend reaching out to an independent insurance agent to help you find one. An independent agent is one that works with many different carriers, so they can shop around for you, as opposed to agents like State Farm/Progressive/Allstate that only work with one carrier.
If you are going to be retailing supplies from someone else, you may want to enter into a vendors agreement with them that would provide you with additional insured status for liability from their product. This wouldn't help you with your own product liability (labelling, kit instructions, etc.) but is generally a good practice, and pretty common for retailers.
Whether or not you want to buy an umbrella policy over your businessowners policy is really a question of risk appetite. You'll have more coverage in case your product seriously hurts someone, but a lot of small businesses have decided that if they get sued for more than the standard $1,000,000 occurrence/$2,000,000 aggregate limits, they'll just close up shop. And the vast, vast majority of small businesses don't get sued. Insurance companies make a TON of money on liability insurance, and umbrella coverage is the most profitable, which means that as a policyholder it's less likely to be "worth it" for you. But maybe the peace of mind is? It's really up to you.
Feel free to DM me with any other questions.
I hope you don't mind, but I sent you a question.