Cost of Liability Insurance
How much does liability insurance cost? A common question asked by food and beverage companies. The factors below determine premium.
Product type is a key element. The “higher” the risk, the higher the premium. Higher risk products include products directly imported into the US. An insurance company, insuring an importer, bears more risk because a foreign manufacturer will not likely share the burden of a product liability loss.
The cost of liability insurance is higher for energy drinks, protein bars and shakes. Meal replacement products, products marketed to diabetics, probiotics, baby food, unpasteurized dairy, popcorn, and sexual performance enhancers result in higher premiums as well. This is not a complete list but you get the idea. We give you the best information we can up front because the cost of liability insurance will start at $1,500 to $7,500 as a minimum. Entities licensed to access these insurers often charge placement fees which vary but $100 to $250 is common. States also tax these transactions. Our agency does not charge additional fees for placement or certificates of insurance.
The cost of liability insurance is very reasonable for “lower” risk products. Products made in commercial kitchens, owned or rented, will usually start at $350 per year. Products produced at home, with the appropriate health department clearance, is about the same.
In addition to product type there is another component of premium. Annualized gross sales for your operation or per product is especially relevant when calculating premium. The type of product will generate a rate per thousand in gross sales. The rate and the sales amount will determine the base premium. Gross sales are estimated because insurance companies realize you cannot predict the future.
The cost of liability insurance involves an estimate of gross sales. A premium audit is conducted at the end of a policy term. As a result of the estimate, policy audits are an important transaction. Not complying with an audit will result in the insurer estimating sales. Audits can be a simple form, a phone interview or a visit by a premium auditor. Regardless of how the audit occurs, the insurance company is checking to see how actual sales compared to the estimate used to determine the initial premium.
When sales are lower than estimated, a credit or refund is generated. When sales are higher, an additional premium amount is due. Premium audits are subject to minimum premiums and product type. Higher risk products may not be eligible for a refund if sales are lower. If you sell a higher risk product you want to be reasonable about your sales projections.
We hope this information is useful as you evaluate your insurance needs. Let us know if we can help!