One surprising thing about selling on Amazon is that they don’t require you to have any insurance, even when you’re registered as a business seller.
At least that’s the case when it comes to selling on Amazon UK, with Amazon US on the other hand once you reach certain turnover amounts, you’re required to have insurance.
You might be thinking “great!” – after all why spend money on insurance when you don’t even have a store or ever come face to face with customers, it’s not as if someone can slip on a wet floor and blame you for example.
While that may be true, there are still many reasons why you need insurance as an online business, as you’re liable for any damage or injury caused by any product you sell, whether that’s from your own eCommerce store or via an online marketplace like Amazon, Etsy, or eBay.
For example, if you sell phone cases, someone could claim it caused their phone to overheat and catch on fire. If you sell silicone cutlery, someone could claim it caused them to become sick. If you sell blankets, someone could claim it caused a reaction on their skin.
Yes, Amazon FBA Sellers need business insurance, too
I hope you get the point! It doesn’t matter what the product is or how safe it seems, all it takes is one accident and one person to blame you and your products and you’re facing an expensive lawsuit that could potentially destroy your business.
And in fact, this can affect more than just your business! As I covered in our recent Sole Trader vs Ltd. Company comparison, one of the negatives of operating as a sole trader is that you’re personally tied to your business – you’re considered one legal entity. This means that any business liabilities are also personal liabilities and any personal assets are also business assets, so if you were found liable and ordered to pay £1,000,000 in compensation, that could potentially be recovered from you personally, even if your business doesn’t have the money.
I’m not trying to scare you with this horror scenario, but it’s important to understand how integral insurance is as an online seller – it’s not something you should just leave for later and hope nothing goes wrong in the meantime!
And one other important point – a lot of people mistakenly believe that it’s the manufacturer’s responsibility and as resellers we don’t have anything to worry about, but this is completely wrong and doesn’t apply to private label products!
When you’re ordering products from China and importing them into the UK or EU, you’re considered the manufacturer and are 100% legally responsible. This is exactly the same thing when it comes to product testing and certification, you can’t simply leave that to the manufacturer in China and accept whatever they tell you as it’s your responsibility.
What type of insurance do you need?
Now that’ve we’ve gone over why you need insurance, let’s talk a little about the different types and what you need to cover yourself as an online seller.
- Product Liability Insurance
Product liability insurance is the main type of insurance you need as an Amazon FBA seller and covers you against claims made for personal injury or damage to property caused by a product your business designed, sold, or supplied.
The insurance covers you for both the cost of any compensation you have to pay and also for any legal fees involved in defending yourself against any claims.
- Public Liability Insurance
Public liability insurance is the main type of insurance for traditional retail businesses and covers you against claims made for personal injury or damage to property caused by your business. For example, if someone slips in your store due to the floor being left wet. Public liability insurance also covers you if you’re carrying out work at a client, for example if you’re a plumber or electrician.
As an online seller you don’t really need public liability insurance as obviously you / your business don’t come into contact with the public but most insurance providers bundle together product and public liability insurance as a package and you can’t just get one or the other.
What level of cover do you need?
There are no real set amounts for this and it will depend on the type of business you’re running and what products you sell.
However, most providers offer cover starting at £1m, going up to £5m and above. These may seem like high amounts but it’s better to be safe and you have to bear in mind that any claims can include medical costs and loss of income so personally, I would suggest looking at £1-£2m in cover as a minimum.
More insurance types for Amazon FBA Sellers
While product and public liability are the main types of insurance there are also some additional options which you can include. Some are only really needed in special circumstances, some are a waste of money, and some are definitely worthwhile having – all in my opinion of course. But so you can make your own mind up let’s quickly run through them one by one.
- Stock Insurance
For me stock insurance is a must have for any online business as it covers your products if they’re stolen or damaged.
This is especially important if you store stock at home before sending it to Amazon’s fulfilment centres as this won’t be covered by your home insurance. What happens if a water pipe bursts and destroys your stock? Or someone breaks into your home and vandalises it, damaging stock?
In fact on a separate point it’s very important that you inform your insurance provider that you’re storing products at home as they may use it as an excuse to reject any claim you make, even if it’s unrelated to your business / stock!
- Employers’ Liability Insurance
Employers’ liability insurance covers you against any injury or illness of an employee, caused by working for you. For example if you hire someone to do the final quality control and prep your shipments to be sent to Amazon’s fulfilment centres and they injure their back while moving boxes.
Whether or not you should get employers’ liability insurance is very simple, and in fact you don’t even have a choice as it’s a legal requirement if you have anybody employed by you / your business. And if you don’t then of course it’s not needed!
- Business Interruption Insurance / Business Income Insurance
Business income insurance covers you against any loss of income due to damage or theft. For example, if your laptop is stolen and you’re unable to trade, losing sales and income as a result.
Personally I don’t see the value in this insurance as it’s hard to imagine a scenario where it would be needed.
- Legal Expenses Insurance
Legal expense insurance is different to the legal cover which is already included within your product and public liability insurance and it specifically covers your business if a claim is made against you by an employee or you’re subject to an HMRC investigation.
Again, this isn’t something that I feel is needed for me and my businesses personally but it’s an option nonetheless and should be considered if you have employees.
So there you have it. Those are the main types of insurance options for UK businesses. For most Amazon FBA sellers and ecommerce sellers, product liability and stock insurance are all you need, especially when just starting out when you don’t want to be spending large amounts every month.
Who is the best insurance provider for online sellers?
Most people I speak to are put off from getting insurance because they’ve heard stories about how difficult it is to get covered if you’re buying products from manufacturers in China and they expect it to cost a lot.
But I’m happy to say that from my experience, both personally and from helping countless Amazon Sharks members, both of those fears are unfounded.
In fact, it’s getting easier and easier as before you had to speak to traditional business insurers and get special customised quotes, but now there are a number of brokers who specialize in insurance for online sellers.
A number of my blog readers have used Crendon Insurance Brokers Ltd as they offer dedicated online retail insurance.
Once again they offer a specialised service for online sellers and you get quotes from multiple insurance providers and I’ve had very good feedback from people who’ve used them, including Amazon Sharks members:
How much does insurance cost for online sellers?
As we’ve already covered this depends on multiple factors, such as your turnover, what products you sell, where they’re manufactured, the level of cover required, etc.
But generally, for Amazon FBA sellers with one or two product lines, you can expect to pay something around £30-£40 a month. This fits in pretty well with the example quotes given by Simply Business:
Of course there are other factors to consider such as the excess and specific terms and conditions, so don’t simply go for the cheapest quote straight away!
And that brings us to the end of today’s post. As always if you need any help or have any questions about getting insurance for your own business, then email me and I’ll do my best to help.
Or if you have any suggestions for other blog readers on good companies to use then feel free to post them below.
Otherwise, until next time!
All the best,
Disclaimer – any recommendations or advice given are purely my own opinion. Please always seek professional legal advice if needed.