So, you’ve brought your brilliant product idea to life – or perhaps you’re about to launch yourself as an expert in repairing a particular product. Regardless of what you do, your offering as a business is your pride and joy so if someone comes knocking, claiming your product or service has injured them or damaged something they own, that sense of pride can quickly give way to a very real business risk.
Of course, there’s plenty of uncertainty-based risk in any small business whether it be financial risk, environmental risk or liability risk.1 And while some risks remain uncertain, you can prepare your business for others – particularly if you sell products or repair them.
Small business insurance can help mitigate a number of potential threats to your business, including liability risks that might arise from your products. This is most commonly referred to as product liability insurance.
This type of business insurance, though, isn’t a one-size-fits-all fix. The kinds of products you sell, supply or install can all influence the type of cover your business may need.
All of this might leave you wondering what product liability insurance in Australia actually covers, how a liability claim could impact your business, or even what your legal responsibilities are in relation to your products.
In this article, we’ll help to untangle the sometimes complex web of product liability, business risk and insurance for product liability, so you can hopefully feel more confident to make an insurance decision for your business.
What is product liability insurance?
Product liability insurance covers your liability if a defective product you sell or a repair service you provide causes harm to a person, or causes loss or property damage.2,3 Defects in a product might include manufacturing defects, design defects or inadequate labelling, such as warning labels or instructions not being printed correctly.3
An example of an incident that could lead to someone making a claim against your business might be a customer who suffers an electrical shock after buying a faulty toaster from you.2
Product liability insurance will often be bundled with other general liability insurance such as public liability insurance.4 That’s because there are some areas of crossover between the two covers.
What does product liability insurance cover?
Product liability insurance covers your liability arising from a claim against your business, but this can be broken into three distinct categories that are covered.
Personal injury or illness
Someone may be injured or become ill as a result of your product, which could lead to them making a liability claim. Someone who makes a claim may be seeking compensation for ongoing medical treatment and care, pain and suffering, or lost income.5 Your business would become liable to pay these costs, but that’s where your product liability insurance may cover you for some or all of those costs.
Property damage
Similar to personal injury or illness, when someone lodges a liability claim against your business, they may seek compensation for any damage caused by your product to their property.
Legal and defence costs
If a consumer is successful in making a claim against a business and it’s decided that the matter should be settled in court, the court will then decide how much compensation is due.6 In these instances, product liability insurance covers any legal or defence costs you or your business may incur during this process.
Understanding small business risk
Before assessing whether your business may need product insurance, it can help to understand the risks your business faces and your legal responsibilities as a business owner.
Business risks are factors that can impact your business or even lead to business failure and could include natural disasters, work health and safety, crime or reputation.7 Risk categories include direct risks, indirect risks, internal risks and external risks.7 For example, your products might fall under direct risk (a risk within your control) or an internal risk (risks you have the power to prevent or mitigate).7
When you start your product business, there are some risks you may wish to consider such as poor quality assurance and product inconsistencies8 that might lead to a claim if not managed correctly.
You might be able to mitigate some of these risks and hopefully reduce the likelihood of action against your business by having a good process for:6
- Product design
- Quality assurance
- Production
- Record keeping
- Marketing
- Information for customers.6
What counts as a ‘defective’ product?
A defective product doesn’t always mean it’s “broken”. It can encompass a number of things, such as:9
- A manufacturing fault – something went wrong when the product was made
- A design defect – even when made correctly, the item is still risky
- A marketing defect – although the product might be safe, the warnings or instructions and labels are missing or inadequate
- Misleading claims – the product isn’t what you said it was.9
Your legal responsibilities to consumers
For many small businesses, there is some overlap between product issues and your obligations under the Australian Consumer Law (ACL).9 Your customers have the right to expect certain things when they buy a product or service, and these rights are called consumer guarantees.10
For products you sell, a consumer has the right to expect certain things including that a product:10
- Matches the description
- Is fit for a particular purpose
- Is of an acceptable quality
- Matches samples or a demonstrator model
- Meets any extra promises about its quality, condition or performance.10
And if your business provides services, a consumer has the right to expect that the service is:10
- Carried out with due care and skill
- Fit for any purpose stated
- Provided within a reasonable time frame.10
These rights are protected under consumer law10 and help manage the expectations between businesses and their customers in relation to products and services. It may be important to note that legal compliance comes before insurance, and insurance doesn’t replace your legal obligations.4 However, once you know that you’re meeting your legal obligations, exploring insurance may be a wise next step.
Do I need product liability insurance?
When you’re asking the question of whether you need product liability insurance or not, there are some considerations to be made about your business’s operations. Firstly, if your business makes, sells or supplies goods – even in the form of a repair or service – you may need product insurance.11
More broadly, some industries that may consider product liability insurance might include:12
- Parts suppliers
- Product manufacturers
- Retailers
- Installers
- Designers and engineers.12
Any businesses involved in the life cycle of a product may also benefit from product liability insurance.12 Some other questions to ask yourself when you’re weighing up product insurance coverage might include:
- Could I afford to pay for damage to someone’s property or their ongoing medical bills?
- Could I pay for legal costs if my business was taken to court?
- Could I continue to run my business if I had to make potentially substantial payments like these?
Is product liability insurance compulsory in Australia?
Product liability insurance isn’t mandatory in Australia for small businesses.12 There are types of business liability insurance that are mandatory for some businesses such as public liability insurance11 and Compulsory Third Party (CTP) insurance – which is mandatory for all vehicles in Australia.13
Product liability vs public liability: What’s the difference?
The main crossover between public liability and product liability is that they both cover your legal liability arising from a claim made against your business.11,14
The simplified difference between the two are:
- Public liability insurance – covers any legal liability you may have to pay if your day-to-day activities in your business cause damage or injury to someone.14,15
- Product liability insurance – covers any compensation you are legally liable to pay if a product you sell or manufacture or a service you supply causes injury or property damage.15
How much does product liability insurance cost?
As with any type of insurance, product liability insurance costs will vary from insurer to insurer and depend on a number of factors.12,16 Factors that can influence the cost of business insurance and small business liability insurance include business activities, location, financial details and your claims history.17
Another factor that can impact the cost of your premium is how much cover you want for your business.16
“At Youi, under a Small Business Insurance policy – which automatically includes Public and Products Liability Cover – you can select from $5million, $10million or $20million for your cover,” says Mervyn Hartley, Youi’s Head of Product – Home and Small Business.
“Selecting the appropriate cover can help to avoid underinsurance and provide greater peace of mind should a claim against your business arise.”
Can sole traders get product liability insurance?
Deciding to go it alone as a sole trader offers plenty of benefits – including simple set-up and operation and full control of business assets and decisions18 – but knowing which insurance you need might be confusing.
If your sole trader business sells or manufactures products or provides a service related to them, you may need product liability insurance. Ultimately, whether it’s appropriate will depend on the nature of your specific business and the risks involved.
Does Youi offer product liability insurance?
Yes, Youi offers Public and Products Liability Insurance which is automatically included in our Small Business Insurance. So, if you’re looking for a Small Business Insurance policy, renewing your insurance or just shopping around, you may wish to consider Youi.
Give our friendly advisors a call on 1300 010 648 or start a quote online to see if Youi is the right fit for you and your business.
1 Source: Australian Government – Business risks, n.d.
2 Source: Qld Government – Business insurance, September 2024
3 Source: Vic Government – Insurance in procurement: Goods and services guide, March 2026
4 Source: Sprintlaw – Understanding Liability Insurance For Small Businesses: Essential Legal Protections Explained, September 2025
5 Source: Maurice Blackburn Lawyers – Product liability: What to do when defective products cause harm, March 2025
6 Source: Australian Competition and Consumer Commission – Product safety laws and liability, n.d.
7 Source: Qld Government – Identifying and managing business risk, September 2025
8 Source: Qld Government – Managing risk when starting up, November 2022
9 Source: Sprintlaw – Defective Products: Liability, Recalls And Risk Prevention In Australia, April 2026
10 Source: Australian Competition and Consumer Commission – Consumer rights and guarantees, n.d.
11 Source: Australian Government – Types of business insurance, n.d.
12 Source: Finder – Product Liability Insurance, March 2026
13 Source: Moneysmart – Choosing car insurance, n.d.
14 Source: Business Victoria – Find the right insurance, October 2022
15 Source: Sprintlaw – What is Public Liability Insurance and Do You Need It?, June 2025
16 Source: Insurance Council of Australia – Premiums explained, n.d.
17 Source: WA Government – Practical guide to business insurance, n.d.
18 Source: Australian Government – Sole Trader, n.d.
