Amazon is now enforcing insurance requirements to sell on their marketplace. Per Amazon’s terms of service, business liability insurance protection is required for all sellers. Do you carry business liability insurance? If not, your Amazon seller account is not protected. Take the steps now to avoid any limited access or account suspension. Don’t drop your seller rank. Learn the steps to get into compliance.
Update August 1st, 2022: Amazon Reversal. Update on commercial liability insurance policies for sellers. On June 13, 2022, we updated our Commercial Liability Insurance policy to require zero-deductible policies from sellers. Following this update, a number of sellers told us about the challenges they face in procuring zero-deductible policies. We thank our sellers for this feedback, and we won’t proceed with this change. We will continue to allow policies with deductibles for sellers on Amazon and have reverted to our previous policy requirement: The deductible for any policy(ies) must not be greater than $10,000, and any deductible amount must be listed on the certificate(s) of insurance. We will reflect this update on our Commercial Liability Insurance policy in the coming days. For more information, go to Business Insurance and A-to-z Claims Process for Property Damage and Personal Injury.
Update June 13th, 2022: Amazon tightens liability insurance rules for sellers under $1 million in sales. Now, sellers whose gross sales are $1 million or less may not have any deductible. That means small sellers will incur greater costs since no-deductible insurance plans usually come with higher premiums. This change will take effect 7 days after the announcement.
Here are the two changes:
- Your policy can include a deductible if (i) your gross proceeds from sales of your products in the Amazon.com store exceed USD 1 million in the last 12 months, and (ii) the deductible is listed on your Certificate of Insurance;
- For single-member LLCs, the insured name can match either your legal entity name or the name you publicly use to identify your business (“trade name,” “doing business as,” or “DBA”);
Update: Amazon has made an essential update to terms of service (TOS) insurance requirements. As of August 10, 2021, sellers received an e-mail announcing a revision of Amazon’s A to Z Guarantee program. In that announcement, Amazon announced that on September 1, it is changing when a seller needs to obtain liability insurance. The seller will need liability insurance when they have reached $10,000 in sales for three consecutive months or once they obtain $10,000 in sales in any month. Amazon sellers are on the hook for claims above $1,000. That means you have a lot of exposure, especially if you are hit with a lawsuit. $1 million is coverage is required, but that may not be enough to protect you. See Amazon’s Notices to Seller’s Requiring Proof of Insurance.
Foreign sellers must purchase in their local country and have a global protection policy (if you can even find anyone to insure you). If not, your best option is outlined below with the formation of a U.S. company. Most sellers received an e-mail on September 13, 2021, and a second notice was received on October 29, giving a reminder to provide the certificate of insurance within 30 days.
Update from March 2022, many of the same sellers are receiving notices who received their first notice back in September or October. They are way past 90 days, and their accounts have not been suspended yet. This can change at any time. Likely, Amazon has had challenges providing options for non-residents, which has slowed up the process. But why risk your account? Schedule a call with our team now. Our team has a 100% success rate with getting approval by Amazon for non-residents.
Insurance providers are receiving email notices from Amazon to verify the seller’s information, including the name and DBA name on the insurance, the policy number, date of expiration, and policy coverage. We don’t know what happens if your insurance company does not respond to these requests (not because they don’t want to, because there are thousands of requests going out). If you are making monthly payments to your insurance provider, make sure your payments are current and your credit card is being charged. Otherwise, your policy will not be approved, and the insurance provider is required to report if your policy is inactive due to non-payment.
From Amazon: If within 60 days of the first notification by Amazon we do not receive your proof of insurance or we are unable to confirm the information you provide within, future disbursements will be held in your seller account until we can verify your proof of insurance. If you still do not take any action or we are still unable to verify your proof of insurance within 90 days of the initial notification, we may not allow you to continue selling on Amazon.com.
Below is a recent interview by James Thomson on the Buy Box Experts podcast, with NCP’s CEO, Scott Letourneau, and Matt Lovell, of Well-Insurance.com, talking about Amazon’s new insurance requirements.
Strategy: There is a disconnect between using the LLC to obtain the certificate of insurance, what names go on that in addition to the LLC, and how Amazon does not allow you to update your legal entity with a single-member LLC disregarded. There is a different tax impact when the LLC is for the insurance, but not to operate your Amazon business. Using a U.S. LLC to operate your Amazon business as a U.S. taxpayer is more involved and is not the case for this situation. We have pointed it out to Amazon and have a solution when you work with NCP. Watch our video below for an overview of how we will help you get into compliance.
What is required for Non-Resident Amazon Sellers to Obtain a Certificate of Insurance from a U.S. insurance company and keep their account active?
Here is your checklist to obtain a Certificate of Insurance from a U.S. insurance provider (our recommendation is Well-Insurance.com).
- A U.S entity. [Important note] To provide proper coverage, a U.S. insurance policy needs to be written on a U.S. company. Don’t assume that if you obtain a certificate of insurance with only an address and EIN, and Amazon accepts it, it will be valid long term. Amazon wants companies to have the proper coverage to protect you if required.
- A U.S. address (not a PO Box)
- An EIN from the IRS (now taking about 7-10 business days). Note: The IRS requires the EIN to be faxed to a U.S. company vs. a foreign company where you can call over the phone.
- Obtain the COI (a quote will be provided after your U.S. company is in place)
- Update your Amazon Seller Account properly and receive address verification (NCP provides all these steps)
- Upload your certificate of insurance
Other key support areas:
- Our partner CPA firm will file the appropriate U.S. tax returns for this strategy.
- Which U.S. state is best to lower your insurance costs and give you the best option for compliance if a utility bill is required?
- What U.S. tax returns are required and the fees involved based upon your situation?
- What annual requirements are triggered with my U.S. entity formation?
- Complete support between your U.S. entity formation, your certificate of insurance, and updating Amazon correctly to keep your account active. All our clients are getting approved when you follow our steps.
We will share our best options to help you solve your certificate of insurance requirements to keep your Amazon account active.
Our clients have a 100% success rate when following our steps. This is the result you want in your Amazon account.
Amazon’s 30-Day Notification and Insurance Requirements
Sellers with professional selling plans on Amazon.com must provide proof of Commercial General Liability insurance or Certificate of Insurance (COI). This insurance, obtained at the seller’s expense, shall cover up to $1,000,000 per occurrence and in the aggregate and must include product liability, bodily injury, personal injury, property damage, and other requirements as stated in the Participation Agreement. The insurance must indicate that “Amazon.com, Inc., and its affiliates and assignees” are added as additional insureds.”
This was amended, as we mentioned earlier. A seller needs to obtain liability insurance from once the seller has reached $10,000 in sales for three consecutive months to once they obtain $10,000 in sales in any month.
Amazon said it will pay for A to Z guarantee claims seeking compensation for personal injury and/or product damage under $1,000 and will not seek compensation from sellers who hold valid insurance.
With these new changes, you may receive a notice where you have 30-days to provide proof of insurance. The goal is to avoid suspension with your Amazon account.
The challenge is as a non-resident, your insurance rates may be much higher or not even possible to obtain. For example, most foreign insurance companies don’t want to insure supplements due to the risk. Those companies are partnered with American insurance companies.
U.S. Company Formation Strategy
For the American insurance company to underwrite your policy, you must be operating through a U.S. entity. A U.S. LLC is most common. The key is to make sure your U.S. LLC is appropriately established, especially with the IRS, so you avoid any necessary audits. Go here to learn more about U.S. taxation requirements for non-residents and the components of a complete U.S. LLC formation.
The strategy is different in this situation and will also impact (in your favor) U.S. taxes and tax filing requirements.
Once you have the U.S. LLC., the insurance provider can provide you a quote. Yes, an EIN. is required, but it will need to be attached to the file. But typically, you can receive a quote before having your EIN in place.
How to Classify Your Insurance Correctly for Proper Coverage when You Import Your Product from China
Amazon wants you to provide them with a certificate of insurance (COI). Amazon does not know the difference between a basic policy that is classified and rated for an “online retailer or e-commerce retailer” vs. a policy that has been rated as an “importer” or “manufacturer” of some type. But this should be a big difference when it comes to protecting your brand and business. Also, Amazon must be added as an additional insured and notified if the policy is canceled or expires. Don’t be surprised if you receive different insurance rates due to these factors.
If you are dropshipping someone else’s brand, a basic insurance policy such as an “online retailer or e-commerce retailer” will be sufficient. As long as supplements sales don’t exceed 25% of your total sales. These are less money also. This is sufficient because if there is a lawsuit, it will be pointed to the brand you are dropshipping, not necessarily you as the seller. That does not mean you can’t be sued, but lawsuits are about going after deep pockets at the end of the day.
If you sell private label products, you do NOT want to be classified and rated as an “Online Retailer” or “eCommerce Retailer.” If you want real coverage for your brand, not only to appease Amazon’s certificate of insurance requirement. This will not be sufficient coverage in the event of an actual lawsuit. Why? You, the seller, assume all the liability exposure, even though your products were manufactured in China, because you can NOT subrogate back against a Chinese manufacturing facility. What does subrogate mean? Subrogation describes a legal right held by most insurance carriers to pursue a third party that caused an insurance loss to the insured.
If you are a private label seller, you want to be correctly rated and classified as an importer or manufacturer of some type, which will come with a higher insurance premium.
Now you will have the proper coverage in the event your company is sued. If your products are manufactured in the U.S., you expect your premium to be slightly lower (all other factors). Of course, if you are selling products subject to more liability, that will impact your premiums also.
Your insured name must match the “legal entity” name you provided to Amazon for your certificate of insurance (COI) to be accepted.
In the end, you want to work with an insurance provider that will give you the proper coverage for your business and family to protect your brand, not only to provide Amazon or other marketplaces with a certificate of insurance.
What is the Time Frame to Obtain Liability Insurance?
A quote can happen within a day or two if straightforward but may take a few more days if more complex. The key is someone filling out the application correctly. The certificate of insurance (COI) will come in about 2-3 days after the application is submitted and the first payment to the insurance provider, monthly, quarterly, or annual. This is important because Amazon gives 30-day notices to update your account to avoid a suspension.
You may also ask for worldwide coverage, which is only another $200 + or so in many cases.
Estimated Insurance Costs?
You will want to know the estimated cost of liability insurance for your Amazon business. The best way is to obtain an estimate when your U.S. LLC has been formed. See our U.S. Entity formations page for U.S. LLC services and detail involved with our support.
Here is an overview of potentially what liability insurance may range for a year.
• Basic household items range from $400 – $600 ballpark.
• Higher-risk products such as supplements, children’s items, exercise/sporting goods, cosmetics, nutritional products may range from $1,000 to $10,000. The average in these categories is around $3,500.
To receive an accurate price quote for the proper coverage, whether you are dropshipping or a private label seller, reach out to Well Insurance.
Amazon is not the only marketplace that requires liability insurance. Here are a few of the major ones that will also want to see your certificate of insurance.
What Will Happen if Amazon Sellers Don’t Have Insurance After Their 30-Day Notice?
Update: After speaking with one of the Amazon insurance providers, they have revealed that Amazon is planning to send out an e-mail a week or two after September 1 for all those who did not comply, giving a 30-day final notice for compliance. This is much more serious. Will they suspend your account after that 30-day notice? That is not likely, but limited access to funds may be an option. Will foreign sellers in some countries be given more time because it is harder to obtain insurance? That is possible. Could the 30-day notice change to a 60-day notice? That is possible. As of March 2022, most sellers who have received several notices past 90 days have not been suspended, but that can change any day.
Timing is Key
Once you hit the $10K sales thresholds in a month, you must provide insurance to Amazon.
Don’t wait until the last minute to obtain liability insurance. Even though it can happen quickly, you will want to make sure you have your U.S. entity appropriately formed not only with the state (the easy part) but with the IRS. That internal documents are drafted correctly to make sure your Amazon.com business is protected.
Since our team has worked with the Amazon team closely in the past, we have the correct steps to help you also update your Amazon seller account after formation to ensure your account is not suspended. Yes, we even can provide the “dreaded” utility bill (only on companies we form) if required.
Are You Stuck?
Did you already obtain a certificate of insurance, but Amazon is not accepting it? Did you form a U.S. LLC? Are you not sure what to update on Amazon or what U.S. tax responsibilities you may have triggered? We can help you with our strategy calls to solve these and other challenges you may be having with protecting your Amazon account. Learn more at this link.
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