There are a lot of reasons companies need insurance. They’ve got to protect their logo or company name, make sure they’re computers are covered, and don’t forget workman’s compensation.
But, for food producers, you’ve got to protect something way more important than logos and computers.
You need to protect your customers. Yep – the people who enjoy your products every day. This is why product liability insurance is so important. I recommend getting it before approaching retailers to carry your product.
Why you need insurance:
1. Bad ingredients
If you’ve got recalled ingredients or spoiled ingredients that were used in production, your customers may be calling you complaining of their upset stomachs. Not good.
2. Allergen statements
Forget to put an allergen statement on your label? Peanuts, soy, wheat, etc. – it’s important to communicate allergens to customers (and in some cases, you’re legally required). Get your allergen statement done before you send your labels to the printer.
What kind of insurance do you need (and how much):
Product liability insurance ($1 million):
This insurance does exactly what it describes – protects you from people who have a bad experience with your product. That could be food poisoning or even a shard of glass or metal in your product.
General aggregate insurance ($2 million):
General aggregate insurance is for everything that doesn’t pertain to a specific case. This could be property loss, advertising damage, or bodily injury (hopefully that doesn’t happen!).
Office insurance (optional):
If you don’t run your food business out of your house, you likely have an office. Your office has assets like laptops, office furniture, etc. What if your office gets burned down or flooded? Insurance would protect your tech which means you’d be able to produce
How much does it cost?
Product liability insurance shouldn’t cost you more than $300-$700 annually. This depends on your sales volume. If you’re starting out, it’s going to take some time to reach the revenue limit that increases your premium.
Besides a revenue increase, you may need more coverage. Here’s a couple of reasons:
1. Large distributors
Distributors handle thousands of products. They get your products to retailers and want to focus on that – not your affected product.
2. Big co-packers
Co-packers make your product for you. They don’t want to be responsible for your product recall or have any of the liability. After all, they’ve got their own to worry about.
3. Popular retailers
Large retailers may require a higher amount of product liability insurance. There’s more risk if more people are buying your product.
4. Fairs & festivals (where certificates of liability are needed)
When you’re sampling food products at an event, the last thing the organizer wants is to be held responsible if a festival goer complains about your food product.
This means you’ll need to purchase certificates of liability insurance holding the event as additionally insured. For me, these have cost $25/event, but your agent may charge more.
How to find your insurance provider:
Get national quotes (but buy locally).
One of the best places to find quotes for product liability insurance is national insurance providers like AIG and eInsurance.com – and they might be cheaper than working with a local agent. However, you’ll have a much more pleasant experience with a local insurance agency.
Why work with a local insurance agent
I’ve only purchased insurance from a local insurance agent (who may work for a larger firm) for several reasons:
You get almost instant support
When you work with a large internet-based agency, you probably call a call center to get support. Just navigating through the phone tree is a pain. With local providers, you get a real person on the phone. And you can’t replace a real person with a robot, right?
Work gets done faster
Need a certificate of insurance for your farmer’s market or event? Or how about advice on moving to a new plan? Getting work done from your local agent is dramatically faster than a large firm – often less than 24 hours. With a big company, you’re lucky if it takes two days.
Partner with a local firm. You won’t regret it. They’ve got the support (and sometimes better quotes), plus, you’re supporting a local business.
But some of you may be questioning whether product liability insurance is needed when you’re just starting out. I think you know the answer.
Do you really need insurance?
Yes! Product liability insurance is necessary. If you’re sued over bad product, your company might have to shut its doors. There’s no one there to back you or your company up.
It’s a start-up cost. You need to sell enough of your product to cover the expenses of running a business. And one of those expenses is liability insurance.
Believe me, you’ll be glad you have it when you actually need it.