This may sound intimidating to some, but e-commerce insurance isn’t as complicated (or expensive) as you may think.
If you’re selling on Amazon, you need to treat it like any other business, and having the proper insurance to protect yourself and your business is part of that.
In this post, we’ll be digging into:
- Why you need insurance to sell on Amazon
- Amazon’s insurance requirements
- What type of insurance you need
- Where to get insurance and the cost
Why do you need insurance to sell on Amazon?
If you’re like many new or experienced sellers, you probably didn’t realize that Amazon, at some point, requires you to have product liability insurance.
You may be thinking, “Well if anything goes wrong Amazon has my back, right?”
Wrong. Amazon does not want the responsibility and it is up to you, as a business owner and Amazon seller, to have the proper insurance.
The reason behind this rule is very simple: To protect yourself/your company’s assets and cover any financial obligations resulting from accidents, injuries, or litigations.
And while the chances of a customer suing you may be low, it’s better to err on the side of caution — and adhere to Amazon’s rules.
Take the case of a couple suing Amazon for faulty solar eclipse glasses as an example. The couple claims the glasses they bought on Amazon did not protect their eyes during the solar eclipse and ruined their vision.
As a seller, you may not think such a simple product would harm anyone, but accidents do happen. It’s probably the last thing on your mind when selling products on Amazon, but better to protect yourself from unforeseen incidents than to not have insurance at all.
Should you form an LLC for added protection?
Although it’s not required to have an LLC (Limited Liability Company) to sell on Amazon*, it may be a good idea to form one in the future as your business grows, since an LLC protects your personal assets in case of a lawsuit.
Having an LLC plus product liability insurance will give you more peace of mind, especially if you are a bigger seller.
Amazon’s requirements (and where to find this info)
In Seller Central, it is a little unclear where to find information on Amazon’s insurance requirements. But, on the Program Policy help page, Amazon lists numerous policies that you, as a seller, must abide by.
Pro Merchant Insurance Requirements
Towards the bottom of that list, you will see Pro Merchant Insurance Requirements, which states:
This means that if you have an individual seller account, Amazon does not require you to have insurance. (You should probably still have insurance but we’ll get to that in a little bit.)
Timing and transaction requirements
While the Pro Merchant Insurance Requirements page states that Pro Merchants must have insurance, it does not list all of Amazon’s requirements. For a complete list of the insurance requirements, you need to go to the Amazon Services Business Solutions Agreement.
This states that if your sales exceed the applicable insurance threshold for three months in a row, Amazon requires you to have insurance. However, in this section, it does not tell you what that threshold is.
Insurance limits and thresholds
Next, scroll down to the ‘Definitions’ section. Then, look for ‘Insurance Limits’ and ‘Insurance Thresholds.’
(An easy way to find each section is to hit control+F on a PC or command+F on a Mac and do a keyword search.)
‘Insurance Limits’ means the applicable one of the following:
- $1,000,000 CAD, if the ‘Elected Country’ is Canada
- $10,000,000 MXN, if the ‘Elected Country’ is Mexico
- $1,000,000 USD, if the ‘Elected Country’ is the United States
‘Insurance Threshold’ means the applicable one of the following:
- $10,000 CAD, if the ‘Elected Country’ is Canada
- $100,000 MXN, if the ‘Elected Country’ is Mexico
- $10,000 USD, if the ‘Elected Country’ is the United States
Basically, this means 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.
Even if you’re just starting out or are a little below the insurance threshold, we still recommend being insured. You never know what could happen with one of the products you sell. And just because you don’t meet Amazon’s threshold doesn’t mean you won’t be liable if a customer gets injured.
What type of insurance do you need
Amazon requires sellers to have $1M in coverage.
You must have Commercial General Liability (CGL), Umbrella and/or Excess Liability Insurance coverage with limits of not less than:
You may also satisfy the insurance limits by using any combination of Commercial General Liability and Umbrella and/or Excess Liability insurance. However, if you do this, the required ‘Additional Insured’ wording must be as follows:
“Amazon.com, Inc., its affiliates and assignees are additional insureds, as their interests may appear”
Where to get liability insurance and how much it costs
Applying for Commercial General Liability, Umbrella, and/or Excess Liability Insurance coverage is pretty straightforward. Simply contact insurance companies such as Wells Fargo, Progressive, Geico, etc. to receive quotes (Amazon-specific insurers are listed below).
And because it is largely product liability insurance that is required, your quote will be based on your estimated annual revenue. The average cost is typically around $500-$1,000 per year.
To easily view quotes from multiple insurance companies, you can use Insureon. They will send you multiple quotes from top carriers to compare. Make sure you let the insurance agent know you are an Amazon seller beforehand though. That will ensure Amazon’s exact requirements are covered.
Insurance companies specifically for Amazon sellers
Here are a few insurance companies that work specifically with Amazon and eCommerce sellers:
What’s great about using the insurance companies listed above is that they will know exactly what type of coverage you need as an Amazon seller.
Protect yourself and your Amazon business
And that’s it! As you can see, getting insurance for your Amazon business isn’t as difficult as you might think. Plus, it will give you and your business some much-needed protection (just in case).
In other words, have peace of mind so you can focus on growing your business!
If you have any other questions regarding Amazon seller insurance, please leave a comment below!
*Disclaimer: This is not intended to serve as legal, tax, or other financial advice. For this reason, you are advised to consult with your own attorney, CPA, and/or other advisors regarding your specific situation.