What Amazon’s Small Merchants Must Know About Insurance

Are you looking to become a professional merchant on Amazon? Then you’ll need insurance. This may come as a surprise to many but Amazon requires their sellers – big or small – to have product liability insurance. With so many cases of faulty products leading to expensive lawsuits for Amazon – can anyone blame them? For example, this couple sued Amazon over eclipse glasses that they say ruined their eyesight. This happened after the online retailing giants emailed customers to recall potentially dangerous solar eclipse sunglasses. But the couple claimed they didn’t receive any such intimation and took Amazon to court. This happened in 2017.

The year before that – there was another series of incidents involving hoverboards. A number of these two-wheeled devices had faulty batteries and would catch fire. This resulted in thousands of reported injuries and even a few houses burning down. Amazon and its third-party sellers are still dealing with the resulting court cases.

We all know that fighting court-cases are an expensive and time-consuming affair. Even one such case can act as a torpedo for small sellers. This is why it’s so important for sellers to ensure their safety before anything happens. Plus, Amazon insists on their retailers having insurance. In this guide, we’re going to go over a few points that Amazon’s small merchants need to know.

Who Needs Liability Insurance?

In case you’re wondering whether it’s essential for you, here’s a checklist:

  • Do you have a professional FBA Seller account?
  • Are you buying wholesale items or private labels from China and other foreign countries?
  • Do you make more than $10,000 in sales every month?
  • Are you manufacturing your items?

If you’ve answered yes to any of these questions – then you need liability insurance.

Do You Need to Form an LLC for Extra Protection?

Small-scale sellers don’t need this. In general, it’s not compulsory to have an LLC to sell on Amazon but it’s a practical idea to form one if you’re a large seller. As your business grows, an LLC safeguards your assets if someone files a lawsuit against you. 

Important Details

  • If you have an individual seller account, Amazon does not require you to have insurance. (You should still have insurance regardless, for your personal safety.)
  • If your sales are over $10,000 per month for at least three months in a row, you will need to carry insurance with at least $1,000,000 in coverage.

What Type of Insurance Do You Need?

According to Amazon, you must have Commercial General Liability (CGL), Umbrella, and/or Excess Liability Insurance coverage with limits of not less than:

“$1,000,000 per occurrence, $1,000,000 in the aggregate for products and completed operations, and $1,000,000 in the general aggregate. Such insurance must include product liability, products/completed operations, bodily injury, personal injury, broad form property damage, and broad form contractual coverage.”

What Type of Insurance Can You Get?

There are various types of insurance plans, each tailor-made for different types of businesses. Someone who has a warehouse faces more risk than someone who is running a small business out of a house. Some of these are as follows:

General Liability

This covers financial obligations related to injuries, accidents, and negligence. This policy will protect you from damaged incurred due to bodily injuries, property damage, legal fees, judgments, and settlements. If you have $10,000 in monthly sales, you’ll need this policy to cover $1 million in damages. The yearly premium can be anywhere from $500 to $3000. 

Amazon’s exact words are: “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.”

Product Liability Insurance

In this context, anyone who orders their products from overseas is a manufacturer – whether or not they’re manufacturing the items. Product insurance is an extension of a liability policy but it can also be an entirely separate cover. The cost for this insurance greatly varies, but an indicator for a low-risk item could be $0.25 for each $100 in revenue. This is for products that are low-risk (non-food, non-topical and have no moving parts).

Suspension Insurance

In case Amazon freezes your account, it can take days or weeks to resolve the issue. Amazon can hold your money for months, regardless of the amount. Suspension insurance protects you from loss of cash flow due to this. This gives sellers access to operational funds if payments stop. Many insurance companies include the services of a professional writer to draft an appeal to Amazon. This insurance is optional but can save you from potentially devastating scenarios.

Business Car Insurance

If you’re using a vehicle for making trips to the bank, supply store, or travel for work-related events, you’ll need this insurance. If you have Hired and Non-Owned Auto Liability, you’ll have protection for your business if any accident happens during company hours. If your vehicle is specifically for work, get a separate policy for it.

Worker’s Compensation

If you have employees, you must have worker’s comp to protect your employees if they get hurt on the job. Contact your local labor commission for data specific to your state.

As you can see, this can all be a handful to process. Get in touch with us if you want to understand more or need to fulfill your statutory obligations as an Amazon seller.