Liability Insurance

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 defected 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 only be calculated in advance, the final premium would be computed once 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 the other. 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; more would be your payout and 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 principle of subrogation apply to Product Liability insurance? How?


T.L Confectionary has been in the confectionary business from 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 few people complaint of fever and constipation after consuming its biscuits. The further investigation revealed that the biscuit packets were contaminated. In the court, the verdict was given against T.L Confectionary, and therefore, it was asked to pay compensation to grieved parties.

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

For that, the company approached one of the insurers who took into account various factors while computing premium 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 that would have to be paid by T.L Confectionary at the time of claim, and the remaining would be settled by the insurer. 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.