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Product Liability Insurance Strategy for Amazon.com Non-Resident Sellers

Amazon is now enforcing product liability insurance to sell on their marketplace. Per Amazon’s terms of service, product liability protection is required for all sellers. Do you carry product liability insurance? If not, your assets are not protected, even if you operate through a separate legal entity.

Until recently, Amazon has not required sellers to PROVE they have product liability coverage. Amazon has started to enforce this requirement with sellers who are doing $10K or more monthly sales given recent lawsuits.  See Amazon’s Notices to Seller’s Requiring Proof of Insurance

Amazon’s Product Liability Policy

Amazon Proof of InsuranceSellers with professional selling plans on Amazon.com must provide proof of Commercial General Liability insurance. 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, or 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 means you may receive a notice where you have 30 days to provide proof of insurance before your account is potentially suspended. If you have not received a notice, you may not want to wait until that point and be proactive with our steps listed below.

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 established properly, 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.

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.

We realize it would be great to receive a quote BEFORE you form a U.S. company, but that is not the way it works. Of course, you will want to know the benefits of forming a U.S. company and the process to move from selling on a foreign entity on Amazon to a U.S. company.  Here is our report that gives an overview of the process.

How to Classify Your Insurance Correctly for Proper Coverage when You Import Your Product from China

Amazon wants you to provide them 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.

If you are dropshipping someone else’s brand, a basic insurance policy such as an “online retailer or e-commerce retailer” will be sufficient. 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 are selling 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 a real lawsuit. Why? You, the seller, assume all the product 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 legally pursue a third party that caused an insurance loss to the insured.

If you are a private label seller, you wanted 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 would 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.

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 Product Liability Insurance?

An insurance quote can happen within a day or two if straightforward but may take a few more days if more complex. The key is your ability to fill 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, which may be monthly, quarterly, or annual.

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 product liability insurance for your Amazon business. The best way is to obtain an estimate when your U.S. LLC has been formed.

Here is an overview of potentially what product liability may range for a year.

• Basic household items are a 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 private label seller, reach out to Well Insurance.

The Time Fame for Product 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, which may be monthly, quarterly, or annual.  This is important because Amazon is giving out 30-day notices to update your account to avoid a suspension.

Other Marketplaces that Require Product Liability Insurance

Amazon is not the only marketplace that required product liability insurance. Here are a few of the major ones that will also want to see your certificate of insurance.

• Target
• Walmart
• Wayfair

Timing is Key 

Don’t wait until the last minute to obtain product liability insurance. Even though it can happen quickly, you will want to make sure you have your U.S. entity formed properly 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 central account after formation to ensure your account is not delayed so you may comply with their insurance requirements and your business is protected properly.

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