Amazon Business Insurance: Is General Liability Enough?

McClain Warren, Marketing Director at Ashlin Hadden Insurance, explains the various Amazon business insurance requirements and why you need more coverage than you may think.

It’s kind of a running joke that insurance agents are one step above used car salesmen and one step below divorce lawyers. And, in many cases, that stereotype is well deserved (we’re saying this as insurance agents ourselves!). Because of the idea that insurance brokers are out to rob their clients of money and time, many business owners don’t want to deal with anything related to protecting their business - which is understandable, but unwise.

Hiding your head in the sand isn’t going to help you if five pallets of your inventory go missing at sea. It’s not going to help you if your customers’ data gets hacked and compromised. And It's definitely not going to help you if you are being sued because your product injured somebody.

While it’s understandable you don’t want to pay for something you may never use, it’s not the best decision to forgo business insurance protection. Even if you already have insurance for your business, there may be gaps in your policy that are leaving you vulnerable to financial and operational arrest.

In this article, we'll cover three main points:

1. Amazon insurance requirements for online sellers.
2. Why general and product liability insurance may not be enough protection.
3. Other types of Amazon business insurance policies you may need for additional protection of your store.

Ready to dig in? Let's go.

Why Does Amazon Require General and Product Liability insurance?

Amazon doesn’t necessarily want you to squander your finances; it just doesn’t want to surrender its own. And that was exactly what was happening prior to its Terms of Service update in 2021 when it started mandating that sellers carry general and product liability insurance.

While Amazon has always requested that sellers on its platform have a protection plan, this rule was rarely reinforced. It was more like an earnest suggestion. This led many merchants to overlook the insurance policy altogether. After several lawsuits brought against Amazon for product defects, including this famous one, Amazon cracked down on its request that Amazon sellers hold general and product liability insurance. So to answer that burning question we see all the time: do you need liability insurance to sell on Amazon? Yes!

According to the Amazon Pro Merchant Insurance Requirements, your insurance coverage must:

• Have a limit no less than $1 million per occurrence and in aggregate, covering all liabilities caused by your business or your products.
• Be commercial general, umbrella, or excess liability insurance.
• Name “Amazon.com Services LLC., and its affiliates and assignees” as additional insureds.
• Have a deductible no greater than $10,000, and any deductible amount must be listed on the certificate(s) of insurance.
• Cover all products you have listed on the Amazon website.

A few points to highlight:

• Foreign-based sellers must purchase protection plans both in the country they sell and globally.
• While this stipulation only applies to Amazon businesses that bring in over 10K in sales a month, being an insurance policyholder is still highly recommended to protect your company and assets.
• Amazon sellers are on the hook for claims above $1,000 as Amazon will absorb any costs associated with claims under this amount. But because claims tend to be quite expensive as they're often the result of lawsuits, it's highly recommended to have at least $1M of aggregate coverage for added protection.

Note: You can find Amazon's Program Policies, including its Seller Code of Conduct and Pro Merchant Insurance Requirements, in Seller Central.

Now, if you have been selling on Amazon’s marketplace for a while, then you are most likely already aware of and have met these stipulations, at which point you may be wondering why you are bothering to read this.

Here’s why: Because even with liability insurance, a large percentage of third-party sellers continue to be defenseless against other calamities that could jeopardize their business – situations that are much more common than lawsuits.

Why Isn’t Liability Insurance Enough to Protect My Amazon Store?

Some people love taking risks, but those risks should never be at the expense of your business and livelihood.

Amazon sellers are often surprised to learn that liability insurance isn't the only type of policy you need to protect your business. While the aforementioned policies are the only ones you legally need in order to sell on Amazon, there are other insurance types that serve to protect your business, finances, and assets in crucial ways.

Here are common business conundrums and questions we hear on a daily basis:

• The basement of my home flooded; will my home insurance cover my destroyed inventory? (No.)
• What happens if one of my employees claims they developed carpal tunnel syndrome? (They can sue you.)
• What happens if my employee steals money from my company? (You’re out of luck.)
• What do I do now that there has been a recall on one of my products? (You’ll have to pay out-of-pocket for the refunds and removal processes.)
• My prep center caught fire and they don’t have warehouse insurance; will I have to incur the financial loss of my inventory? (Yes.)
• One of my investors is not happy with the business returns and is suing; what do I do? (You’ll have to pay for the legal fees and settlement.)

As you can probably deduce, neither general liability insurance nor product liability insurance will cover any of these hypotheticals, and, if we’re being honest, the scenarios above are much more likely to occur than a customer suing you for damages.

How Do I Know What Kind of Amazon Business Insurance Coverage I Need?

This is when business owners can get frustrated dealing with insurance agents – there are dozens of different Amazon business insurance types available and each one covers specific things with specific limits, making insurance shoppers feel overwhelmed and scammed.

And honestly? That could be the case, which is why it’s important that you as a business owner are asking the right questions and have a full understanding of what you are purchasing.

It would be impossible for us to cover every insurance type there is on the market in such a short article, but we’ll try and summarize the most common and relevant ones for Amazon and eCommerce sellers.

Cargo and Inland Marine Insurance

Both cargo and inland marine insurance are crucial in protecting your products while they are in transit. Theft, damage, or loss are all very real possibilities when your pallets are shipped overseas and transferred to your 3PL or one of Amazon’s warehouses.

Cargo insurance is specific to inventory movement via plane or by ship. Inland transit insurance is applied to transportation via land. While it is true that the companies responsible for moving products have their own insurance, you may find their insurance is very limited and may not cover your losses fully.

On top of that, you may not even win a claim against them. There are many “hands in the pot” when it comes to your supply chain logistics and it may be hard (if not impossible) to figure out who is directly responsible for the loss/damage.

Cyber Insurance

Another insurance policy you should strongly consider is cyber insurance, even if your company is relatively small and doesn’t handle a lot of sensitive client information. Cyber insurance provides your company with coverage related to any legal action taken against you resulting from a data breach, cyberattack, or security incident. This insurance helps cover your defense costs in the event a customer sues you over a privacy breach. Furthermore, it pays for damage control in the wake of a cyberattack.

Amazon’s recent changes to its Terms of Service state that the company is absolved of responsibility for any damages in the wake of a data breach against third-party vendors operating on their platform (meaning Amazon sellers must incur all costs associated with a cybercrime). Amazon sellers should strongly consider obtaining cyber liability insurance in order to mitigate this risk and protect themselves from the financial repercussions.

Ask your insurance agent about data breach insurance as well. If your business operations are rather small, this may be a better fit for your company.

Recall Insurance

According to CNBC, roughly 400 products a year are recalled by the Consumer Product Safety Commission.

Even if a seemingly inconsequential piece/part of your product is recalled, you are still obligated to pull your products off every platform they are sold on while also refunding customers who purchased them. Furthermore, you must track down all your inventory that’s in circulation and make a public announcement about the recall. All these endeavors are very costly and time-consuming. Recall insurance helps with these expenses.

Can I Add These Policies to My General Liability Insurance Plan?

If you already have a standard liability insurance plan for your Amazon or eCommerce business, you have a few options regarding how to acquire more coverage.

But first, it’s important you understand the insurance “lingo."

An underlying policy is the initial insurance coverage you and your agent establish to protect your company against certain risks. Every insurance carrier has its own unique scope of risks and limits (in other words, what they will cover and for how much). If you were to get in legal and/or financial trouble beyond the scope of your underlying policy, you would have to pay for that out-of-pocket. For more expansive and fuller coverage, many Amazon sellers opt for an umbrella policy.

What is an Umbrella Insurance Policy?

Umbrella policies cover claims that eclipse the parameters of your underlying policy's terms. Sometimes this can be in the form of additional financial coverage in which an excess policy absorbs the remaining costs that the underlying policy won't pick up.

Other times, it can be adding a different type of policy by closing liability gaps that the policyholder was vulnerable to. So, if your company has general and product liability and you wanted to add a cyber insurance policy, that would be an umbrella plan.

The Bottom Line About Amazon Business Insurance

Often, business owners recoil at the prospect of dealing with insurance agents because they feel they are being bamboozled into purchasing more insurance products than they really need.

And while that may be true in certain occurrences, the reality is that each insurance policy will only cover certain losses and legal ramifications. Many online merchants (specifically Amazon sellers due to the insurance mandate) will only purchase general and product liability policies, hoping their business will be fully covered in the face of adversity. However, policies like general and product liability only protect you in certain situations.

While it’s not necessary that you purchase every type of coverage available on the market, it’s wise to at least have a solid understanding of what you are saying no to.

With so many moving parts in an eCommerce business and such a wide margin of error, ensuring that your business, finances, and assets are protected is one of the most important decisions you will ever make. If you need more advice or guidance with your Amazon business insurance needs, reach out to us at Ashlin Hadden Insurance!