Liability Insurance

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A product liability insurance plays an important role by covering you against various losses or damages which may arise due to consumption or use of your defective item. The premium for product liability insurance is determined on the basis of the risk posed by-product along with factors like quality control procedure, exporting country, business turnover, etc.

Also, if the nature of the policyholder’s business is such that the premium for product liability insurance can calculate only in advance. Once computed the final premium, the policy tenure is over. At that time, the difference between the final insurance premium and the advance premium needs to be paid immediately by the policyholder.

To calculate the premium for product liability insurance policy, the insurance company looked into various factors, such as=

  • Type of your business activity

There are some firms which are riskier than others. Usually, the higher the risk in your profession, the higher would be your insurance premium.

  • Geographical location

Where your business is located plays a crucial role in calculating the premium for a product liability insurance policy. The location of your business greatly affects local laws, geographical risks, etc.; and all these factors can drive the calculation of your product liability insurance policy as well.

  • Claim history

Business owners will need to pay more if they have a history of more claims in the past.

  • Coverage opted

The higher the sum insured you opt for in a product liability insurance; the more would be your payout and the more would be your insurance premium.

While computing the premium for product liability insurance, the insurer would also take into account the deductible limit. In the insurance field, the deductible is the amount that you would have to pay from your pocket at the time of the claim, and the insurance company would settle the remaining claim amount. Further, if you opt for add-on coverages like the cover for limited vendors, etc.; you would have to pay extra to get the cover.

Read more: Does the principle of subrogation apply to Product Liability insurance? How?


T.L Confectionary has been in the confectionery business for the last five years. The company has a clientele base not only in India but African region as well. Last year, the company faced a legal suit when a few people complaint of fever and constipation after consuming its biscuits. Further investigation revealed that the biscuit packets were contaminated. The court gave the verdict against T.L Confectionary, and therefore, asked to pay compensation to grieved parties.

The total compensation amount was Rs. 20 lakh. Once paid the compensation, T.L Confectionary thought about ways to get a shield against such financial losses. Here, it decided to purchase product liability insurance.

For that, the company approached one of the insurers who took into account various factors while computing premiums for product liability insurance.

As T.L Confectionary was in the manufacturing of such items which are perishable in nature, they were considered to be a risky business due to the nature of items manufactured by them. Considering this fact, the insured decided the premium rates for T.L Confectionary.

Read more: What are the duties of Insured under product Liability Insurance?

Also, the insurer considered the deductible limit while calculating the premium for product liability insurance. A deductible is an amount the T.L Confectionary has to pay at the time of claim, and the insurer settles the remaining. The insurance company adjusted the premium rates as per the deductible limit.

Here, T.L Confectionary opted for a deductible of Rs. 50,000, which means, the product liability insurance company would settle only those claims where the amount involved is more than Rs. 50,000. In case, the claim amount is less than the deductible; the same would have to be borne by T.L Confectionary itself.