As an online business owner, you spend a lot of time plugged in. But operating your business behind a screen doesn't necessarily protect you from real-world risks.
That's where protection with ecommerce business insurance comes in handy.
In this article, we'll review each of the following benefits of having ecommerce business insurance:
When you're more familiar with each of these benefits and how they'll impact your business, you can feel more confident about finding ecommerce insurance that's right for you.
If you're an online retailer with an Amazon professional selling plan (and you make more than $10,000 per month in sales) you're likely required to have business insurance for your ecommerce business.
But what is ecommerce business insurance and why does Amazon require some of its third-party sellers to have it?
Ecommerce business insurance is a bundle of different types of insurance policies, one of which may be general liability insurance.
General liability insurance (also known as commercial liability insurance) typically covers a business in the event of:
The first incident type, product liability, is one of the big reasons Amazon wants its retailers to have protection through general liability insurance. We'll touch on product liability more in depth in the next section.
So which third-party sellers does Amazon require to have business insurance?
If you’re a Professional Seller and your business is making $10,000 (gross) or more per month, you will be required to get general liability (GL) insurance to protect your business. GL insurance is one of several important policies you can add to your overall ecommerce insurance coverage.
Let’s break down the key details.
How much coverage does Amazon require you to have?
The Terms of Service state:
Your coverage must cover up to $1,000,000 per occurrence and in the aggregate, which should include "covering liabilities caused by or occurring in conjunction with the operation of your business, including products, products/completed operations and bodily injury, with policy(ies) naming Amazon and its assignees as additional insureds."
This means that you must have a policy that covers claims up to $1 million for one incident and covers $1 million worth of incidents within a policy year.
We'll go over different occurrence types your business may face later in this article.
Despite how much time and effort you put into making and selling your products, it's possible that they may not function as advertised. In this case, a customer could sue you for product liability.
What is product liability? Put simply, it's typically when a customer faults the manufacturer or seller for the product not working as advertised or intended.
There are product liability cases where jury award damages can potentially cost millions of dollars, which usually far exceeds the cost of producing or manufacturing the majority of products.
It's understandable that you may be thinking "This would never happen to me," but it could! Forty-three percent of small businesses are involved or threatened with a civil lawsuit each year. Is that something you want to leave up to chance?
Business owners can do everything they can to avoid putting their customers in harm's way, but unfortunately, we’re all human, and accidents happen. Remember, you don't have to be found at fault to be involved in a lawsuit and have to pay legal fees.
Without ecommerce business insurance, if a customer gets hurt from using one of your products, your company could be at risk for paying for a product liability claim in its entirety without any help.
Here are some example situations where business owners could face product liability claims:
A customer sues an online perfume shop after having a severe allergic reaction to their product. The customer sues the retailer for the cost of the product and the medical bills from their emergency room visit.
If the online perfume shop had business insurance, they'd be protected, and their policy could help cover the cost of the product refund and medical bills, up to their coverage limit. It could even help cover legal fees if the business owner hires a lawyer.
Without an ecommerce insurance policy, those costs would fall to the online business owner, who may have to take the money out of their personal savings.
In another case, a customer may sue an online vintage game retailer because their child got injured playing with one of the games they bought. The parent is demanding the shop owner pay the child’s medical bills.
Without ecommerce business insurance with GL coverage, the retail shop owner would have to pay out-of-pocket. With a policy protecting them, though, they would have coverage to help with the medical bills, as well as any legal fees, up to the policy limits.
The above examples may not seem too severe to you — but they are to your customer, which is important to keep in mind. And these types of incidents, as small as they may seem, can quickly become expensive for business owners.
Having product liability coverage through your ecommerce business insurance policy means that although you can't avoid accidents from happening, you can protect yourself from the risk of an accident occurring.
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If another business believes that something you've said or done is negatively impacting them, they could potentially sue you for advertising injury.
Fortunately, ecommerce business insurance with a general liability policy covers advertising injury claims in incidents such as:
All of these occurrences can have a devastating impact on your reputation among your customers and community. And as an online retailer, you probably already know how important your business reputation is to your bottom line.
How may advertising injuries look to an ecommerce business?
Let's say a graphic designer starts a new business online after leaving an agency. The new online business has a similar color palette, logo, and branding to the agency. As a result, the agency sues the graphic designer for copyright infringement.
The graphic designer is just starting out. Without ecommerce insurance coverage, they could be finished before they even get off the ground, as a result of the legal fees they have to pay out-of-pocket.
With a policy, though, the graphic designer would have coverage up to their policy limit and be able to hire a lawyer to defend their business. In the end, their online “doors” may have a chance of staying open.
Another example: An online greeting card company sells a themed collection of cards based on a popular television show. Another business sells a similar product. They sue the greeting card company, claiming they stole their original idea.
Without business insurance, the greeting card company may have to dip into company or personal funds to file the claim and hire legal counsel.
But if they had ecommerce business insurance with a GL policy, their coverage would help make the process of initiating their lawsuit easier (and less expensive!).
Finally, an online electronics retailer posted on social media that their competitor's products were defective. The competitor could sue the electronics company for libel, claiming a dip in their sales as a result of the derogatory social media post.
Without advertising injury insurance coverage, the electronics company could be facing a hefty legal bill to defend their case. And keep in mind — even if they're found not at fault, they'd still incur legal fees.
Phew — so much for the adage about words never hurting you, right? If you're an online ecommerce business, what you say can come back to haunt you in the form of claims and fees.
Advertising injury claims can extend past the platform on which you're selling your products, like Amazon, Etsy, or eBay. You may be at risk of an advertising injury claim when you advertise your product, whether it’s on the online store, in email campaigns, on social media, or other avenues.
The legal costs we mentioned can be a hassle, especially if after a lawsuit, you're found not at fault. Imagine spending all that time and effort making your case, and then still owing legal fees.
That's the reality for many business owners who are sued, and the legal fees can be substantial.
For many business owners, paying fees out-of-pocket could make an impact so large that it could jeopardize their business’s future.
With ecommerce business insurance, though, your policy can help to cover the cost of legal fees. Besides taking financial stress off you, it also will free up your time and energy to focus on running your business.
If you run your online retail business out of your home, you likely enjoy having flexibility between your work and home life, and saving overhead costs.
Did you know that the typical homeowners insurance policy won't cover your home business if products are stolen or damaged? In this case, the benefits may not outweigh the risks.
Fortunately, an ecommerce insurance policy can help to cover these situations.
Or consider what would happen if an online graphic design company had an expensive computer stolen from their home office. Business insurance could help to cover the cost of a new computer and software so the designer can continue doing their work.
Without an ecommerce insurance policy with GL coverage for their home businesses, these online retailers may have to dip into their personal savings to cover these expenses.
One of the requirements of Amazon's Pro Selling plan is that companies with ecommerce business insurance add Amazon as an "additional insured" on your Certificate of Insurance (COI).
An additional insured on your COI helps to cover those named entities that may not be mentioned in the original policy.
Amazon requires you to add the following language on your COI: “Amazon.com., Inc., its affiliates and assignees are additional insureds, as their interests may appear.”
Including this language helps to ensure that if a customer files a claim against your online business that involves an Amazon order, your policy can cover it.
But what does this do for the customer?
It helps solidify their trust in your business. Beyond the importance of reputation that we talked about earlier, building trust with customers is what helps online businesses thrive.
It isn't easy to maintain trust if a customer has to go through the time and effort of filing a claim — not to mention the money they may spend on legal fees.
Having proof of insurance can help put potential customers at ease. It tells potential buyers that in the off-chance something doesn't go as planned with their purchase, you've taken the step to get the necessary protection. With so many companies competing for business, any step that helps boost your authority is a smart one to take.
At Simply Business, we make it easy for you to get a free quote in less than 10 minutes — all while checking off each of Amazon's requirements and providing coverage that can benefit your business.
Here's what you should know about working with Simply Business to get ecommerce business insurance:
You could get coverage with the above benefits for as low as $25.25/month*. here to reap the benefits and get a quote. Ecommerce Insurance Helps You Leave the Worry Behind
As an online business owner, there are risks you may encounter, but by taking the step to get ecommerce business insurance coverage, you can protect your hard work. But it's a big decision, and we can answer any questions you may have.
Call one of Simply Business's licensed insurance agents at (855) 708-2131. They'll be happy to answer your questions and help you find the best coverage for your online business.
We hope that this article clarified some of the biggest benefits of ecommerce business insurance!
*Monthly payment calculations (i) do not include initial premium down payment and (ii) may vary by state, insurance provider, and nature of your business. Averages based on July-September 2023 data of 10% of our total policies sold.
I’ve told stories since I learned to talk and written since I could hold a pen. As a small business owner myself - I'm a freelance writer and yoga teacher - I love contributing to the entrepreneurship community in different ways (including writing for Simply Business!). When I’m not drafting articles for SB, I can be found on my yoga mat, perusing an indie bookstore, and writing (with my cat nearby of course).
Allison writes on a number of topics such as small business leadership, business structures, and employee training.
This content is for general, informational purposes only and is not intended to provide legal, tax, accounting, or financial advice. Please obtain expert advice from industry specific professionals who may better understand your business’s needs. Read our full disclaimer
*Harborway Insurance policies are underwritten by Spinnaker Insurance Company and reinsured by Munich Re, an A+ (Superior) rated insurance carrier by AM Best. Harborway Insurance is a brand name of Harborway Insurance Agency, LLC, a licensed insurance producer in all 50 states and the District of Columbia. California license #6004217.