Thousands of sellers are taking advantage of Amazon’s global reach. Everyday more and more entrepreneurs are choosing Amazon as their marketplace of choice. But few might realize that eCommerce still carries some similarities with a brick and mortar business.
Namely, you still need to have an insurance policy to cover you from liabilities and the threat of lost opportunities. I know, talking about insurance might sound intimidating and complicated. So before you read further, have an open mind about insurance. It’s not a bad thing and it can be a lifesaver.
In this article, we will cover the following
- Why do you need Amazon seller insurance
- What is product liability insurance
- How to get Amazon insurance and FBA insurance
- Common types of product liabilities
- Who needs Amazon seller insurance
- Amazon seller suspension insurance
- 1 Why Do You Need Amazon Seller Insurance?
- 2 What Is Product Liability Insurance?
- 3 How To Get Amazon Insurance and FBA Insurance?
- 4 Final Thoughts
Why Do You Need Amazon Seller Insurance?
When you think about online selling, you think of delivery costs, payment channels and selling with high margins. Insurance might be the farthest from your mind though. After all, why would you need insurance? You have no brick and mortar facility, no permanent employees, and you don’t even have a factory because you just resell items. Why would you need an Amazon product insurance?
Read below to see the dire consequences when something unfortunate happens and you or your product is being pinpointed as the culprit.
A family’s home in Nashville, USA worth $1 million was destroyed due to a fire caused by a hoverboard toy bought from Amazon. The family sued Amazon because they claim that they were sold a dangerous product.
A couple from South Carolina, USA bought eclipse glasses from Amazon so they can view a rare solar eclipse. They are suing Amazon as they claim that the glasses were faulty and did not protect their eyes properly causing them to have distorted vision and dark spots.
It does not matter if Amazon was the direct seller or if it was a fulfilled by Amazon (FBA) seller. The aggrieved party will exert their legal rights and come after seller.
What Is Product Liability Insurance?
Remember those examples on people suing Amazon. Imagine if you are the FBA seller who sold those products. You might say “Amazon should be blamed! They should have known better and not allowed me to sell those products!”
You are not entirely wrong since the liability for the flawed product can be attributed to anyone involved in the sales process. But, if you are an FBA seller who happens to be selling imported products from companies who have no US presence (e.g. Chinese manufacturers) it would be hard to litigate them for product liability. Amazon just provided the platform to sell, so in a brick and mortar scenario, they just rented you a stall in their market. What you sell is your responsibility and that is why you will need an Amazon seller liability insurance.
Before we discuss how to be insured let’s determine first what product liability is. Product liability is when someone is held responsible for causing harm or injury by selling or giving a defective/flawed product to a consumer.
Generally, products are considered defective or flawed when they do not meet the function expected from the product. Let’s take for example the exploding hoverboard and faulty eclipse glasses. These can be considered as product liabilities since there is negligence on the part of the seller or manufacturer. Even if the defect happened during shipping.
On the other hand, take the soluble cyanide case. It’s clearly a dangerous product but it can be used in a productive way in jewelry making. So there is a market that needs this product. So it can be debated that the seller has no product liability if the product was used in a destructive way in spite of their warnings.
If and when these cases happen, it would be best if you have a product liability insurance to protect you and your business. A single case, unwarranted or not, will cost hundreds or thousands of money for legal fees, hospital fees, settlements, repairs, etc. An Amazon seller insurance policy can shield you from absorbing these fees and keep your business afloat.
How To Get Amazon Insurance and FBA Insurance?
Think of product liability insurance as a component of a general liability policy. The general liability policy is the most basic form of business insurance. Product liability covers potential damage or harm caused by the product to the buyer. The general liability insurance further covers your entire business operation (office space, factory, warehouse).
Amazon demands that all professional Amazon sellers (there are exclusions, more on this later) and private label sellers should have a general liability policy with coverage up to $1,000,000 per occurrence. You should also indicate that “Amazon.com, Inc., and its affiliates and assignees” is part of the coverage or protection.
Below are the common types of product liability scenarios
- Manufacturing defects – The product is inherently flawed during manufacturing. Refer to the hoverboard case. The house fire was caused when the batteries overheated during charging. Probably due to some batteries having leaks.
- Design defects – The product was flawed at the onset, even before manufacturing. The faulty eclipse glasses can be considered a design defect because the glasses did not produce the result it was designed for – to safely view a solar eclipse. A few minutes of unprotected viewing of a solar eclipse can cause irreparable damage to your eyes. Meaning the entire inventory is faulty and designed poorly.
- Marketing defects – The product itself is not faulty. But there could be labeling issues, misleading information on its capabilities, no clear instructions included or no safety warnings. Common cases usually involve food and beverages. A seller of dangerous products like soluble cyanide crystals should place adequate warnings to clear them of any liability from unfortunate circumstances that may arise from using the product incorrectly.
Who needs Amazon seller liability insurance?
While the product liability insurance for Amazon seller protects a business it is not required for all sellers. Below are Amazon seller insurance requirements and which type of seller should have one.
Amazon Professional Sellers – are those who pay Amazon $39.99 for a professional merchant account, Generally, these can be considered as all FBA merchants.
But, if a US-based pro seller is not $10,000 or more for 3 straight months, they are not yet required to get liability insurance. These limits also apply to below countries:
- For Canada, the limit is Ten Thousand Canadian Dollars ($10,000) per month
- For Japan, the limit One Million Japanese Yen (¥1,000,000) per month
- For Mexico, the limit is One Hundred Thousand Mexican Pesos ($100,000) per month
Private-Label Sellers – are sellers who design and manufacture their own products. If you repackage products or if you subcontract to a manufacturer, then you could fall into this category.
Note: Individual sellers are not required to get a liability insurance policy.
Steps on how to get Amazon insurance and FBA insurance
- Approach an insurance agent – Clearly, state that you are selling at Amazon and what you are selling. Most of the times, these agents already know the requirements by Amazon. If not, for starters, state that Amazon requires a $1,000,000 coverage. They should be able to compute the annual premium.
- Review the quotation – get quotations from multiple insurance companies to gauge the best offer. Different companies offer different packages so it’s best to gather multiple quotes.
- Complete application – submit payment and the insurance company should send over the documents for your signing.
- Send proof to Amazon – you need to submit the certificate of insurance to Amazon.
How about an Amazon seller suspension insurance?
Some insurance companies are offering a service unique to Amazon business owners. This is the Amazon suspension insurance which can cover a seller’s loss of income if their account is suspended. The Amazon seller insurance requirements should be these same as liability insurance but should be available to any account – individual or professional.
The Amazon seller suspension insurance may reimburse the computed financial loss during an account suspension. Depending on the insurance company, the policy can also reimburse expenses incurred due to the hiring of an Amazon reinstatement expert like our team at AMZ-Expert to help suspended sellers appeal their case.
Insurance is a dicey but very important component of an Amazon based business. Being the largest eCommerce platform in the world, Amazon needs to implement guidelines to help keep everyone in check and this includes implementing an insurance program.
As in any legal matters, the devil is in the detail and sometimes it is hard to apply and process insurance policies by yourself. If you are an entrepreneur who just wants to concentrate on selling and marketing. You need a trusted partner who can represent and assist you on legal matters.
AMZ-Expert offer an Amazon appeal service for sellers with suspended accounts. We can also help you battle trademark or patent infringements and ungating of services to allow you to sell in a gated category. We have one of the best success rates in the business and our team of Amazon experts are up to date on all guidelines and rule changes.
Contact us at [email protected]. We are here to help.