Do you remember the Hoverboard craze of 2016? They were the hottest “toy” of the year. Parents around the world cringed and ducked as their tweens traveled everywhere by two wheels.
Here’s what you probably don’t remember: A number of those hoverboards had faulty batteries, causing them to catch fire. Thousands of injuries were reported. A few houses burned down. Amazon (and it’s third-party sellers) were named in a multiple lawsuits, some of which are still in court.
Most sellers aren’t selling dangerous electronics, but it doesn’t mean you don’t have liability. All it takes is a bad grocery item or a toxic lotion to put a small seller out of business.
Do you need liability insurance?
- Have a Professional FBA Seller account?
- Have more than $10,000 in sales per month?
- Manufacture your own items?
- Buy wholesale or private label items from China or another foreign country?
If you meet any of these criteria, the answer is yes.
What type of insurance do you need?
Different sellers have vastly different types of liability. An amazon seller with a warehouse incurs much more risk than someone running a small business out of a house. Talk to an agent to see if you need to be covered for one or more of the policies below.
General Liability pays for financial obligations stemming from injuries, negligence, and accidents. If a customer comes into your warehouse and is injured from tripping over a crack, this would be covered by a general policy. A general liability policy covers bodily injury, property damage, legal fees, judgments, and settlements. Any Amazon seller who has $10,000 a month in sales to carry a policy for $1 million in damages. Expect to pay $500-$3,000 a year for an average policy. Amazon’s exact policy is this: “Pro Merchants who sell on Amazon.com must provide proof of Commercial General Liability insurance. This insurance, obtained at the merchant’s expense, covers up to $1,000,000 per occurrence and must include products, bodily or personal injury, property damage, and other requirements as stated in the Amazon Services Business Solutions Agreement. The insurance must indicate that Amazon.com and its affiliates are added as additional insured.”
|Is required?||Yes (Pro Merchants)|
|Minimum Liability Limits||$1,000,000|
|Average Annual Price||$500 - $3,000|
Product Liability Insurance
Product Liability Insurance covers products you have manufactured for your business. This is especially important for sellers who order from overseas -- legally, if you order from a foreign country you are considered a “manufacturer” even if you don’t make the product yourself. Product insurance can be an extension of a liability policy or it can be a completely separate policy. These policies can be expensive and hard to come by. The cost for product insurance varies widely, but a good rule of thumb for a low-risk product (non-food, non-topical and has no moving parts) is about $0.25 for each $100 in revenue.
For example, if you sell $250,000 worth of a product annually, your product liability insurance would be around $625.
|Is required?||Yes (if you buy products from a foreign country)|
|Average Annual Price||$0.25 for each $100 in revenue|
Business Car Insurance
Business Car Insurance protects your vehicle when you’re not using it personally. Do you run errands for your business? This includes trips to the bank, supply store, or travel to events/conferences.
At a minimum, you need to have Hired & Non-Owned Auto Liability, which protects your business if an accident occurs on company time. If you have a car used exclusively for business, it’s safest to have a completely separate policy.
|Average Annual Price||NA|
Suspension Insurance protects your cash flow in case Amazon suspends your account. Consider this: If Amazon freezes your store, it may take days or even weeks to resolve the issue. In this time Amazon won’t pay you the balance of your account -- they can hold your money for months. Without a large cash reserve, this scenario could leave you bankrupt.
Suspension insurance allows sellers to collect operational funds if disbursements stop. Often, this service also includes the services of a professional writer who will compose an appeal letter to Amazon. This is a new arena of insurance that has just popped up in the past few years. Suspension insurance is always optional, but it may save your business in a worst-case scenario.
|Average Annual Price||NA|
Workers’ Compensation -- No matter what state you’re in, if you employ at least one person you must carry Workers’ Compensation coverage. This protects you if an employee gets hurt on the job. This is generally paid through the state -- contact your local labor commission for information specific to your area.
|Is required?||Yes (if you employ at least one person)|
|Average Annual Price||$200 - $2,000|
Without insurance your business can be sued, but sometimes you can be held personally liable as well. Don’t jeopardize your ability to sell on Amazon due to a fluke accident. Specialized e-commerce agents are available at most major insurance companies.