Do I need insurance for an online store?

When an online store is required to carry insurance

Requirements come from three places: state law, contracts and the platforms you sell on. State law mostly applies once you grow. Most states require workers’ compensation if you have employees, though thresholds and exemptions vary, and most states require commercial auto insurance for vehicles the business owns.

Contracts are where many small sellers first get asked for a certificate. ERGO NEXT notes that landlords, lenders, suppliers and marketplaces often require proof of coverage even when the law does not:

• Leasing a warehouse, studio or retail space: landlords commonly require general liability and sometimes property insurance.
• Business loans: many lenders require coverage before financing.
• Wholesalers, distributors and retail buyers: some require proof of insurance before they will stock your products.
• Regulated products such as food, alcohol or cosmetics, which can carry licensing or insurance conditions.
• Payment processors for higher-risk products such as supplements and CBD, some of which ask for liability coverage.

Marketplace insurance requirements

Amazon and Walmart require insurance once your sales cross a threshold; the other big platforms leave it to you. Amazon’s rules, as summarized in its seller forums, also call for an occurrence-based policy that covers every product you list, names “Amazon.com Services LLC and its affiliates and assignees” as additional insured and comes from an insurer rated A- or better. Amazon has required zero-deductible policies since June 2022, with a deductible of up to $10,000 allowed for sellers with more than $1 million in gross proceeds over 12 months.

Walmart requires general liability and product liability coverage that applies worldwide, with Walmart Inc., its subsidiaries and affiliates listed as additional insured, according to Insureon’s summary of Walmart’s seller policy. Check your seller agreement before you renew, because platforms change these terms.

Why you can be sued over a product you didn’t make

Not being required to carry insurance is different from being protected. Insureon points out that every business in a product’s supply chain can be held liable when it causes harm, so resellers, private-label brands and dropshippers can all be named in a lawsuit alongside the manufacturer. If the manufacturer is overseas or out of business, your store may be the only defendant a customer can reach.

The platforms won’t step in. Insureon notes that Etsy won’t help if you are sued, and eBay’s user agreement says eBay has “no responsibility or liability for the safety or performance” of products sellers list. An LLC can protect your personal assets in some cases, but it does not pay legal defense costs or a settlement against the business.

What your homeowners policy won’t cover

Most online stores start at home, and that is where a big gap sits. The Insurance Information Institute says a typical homeowners policy provides only $2,500 of coverage for business equipment, and it generally does not cover business liability such as a product claim.

The Triple-I describes three ways to fill the gap. A homeowners endorsement can raise business equipment coverage from $2,500 to $5,000 for as little as $25, and some insurers go up to $10,000. An in-home business policy adds broader liability, including claims over products you sell, plus lost records and business income. A business owner’s policy suits stores with more inventory or more than one location. None of these covers inventory at a warehouse or in transit, which usually needs inland marine coverage.

What online store insurance costs

Most online sellers start with general liability, which usually includes product liability, or a business owner’s policy that adds property coverage for inventory and equipment. Insureon’s medians for its e-commerce customers are a useful starting point. Your price depends on what you sell, your revenue, where you are located, your claims history and the limits you choose.

Which policies to start with

Match coverage to how your store actually runs:

• General liability with products coverage: the core policy for anyone selling physical goods, and the one marketplaces ask for.
• Business owner’s policy: general liability plus property coverage for inventory and equipment, often cheaper than buying both separately.
• Cyber insurance: all 50 states have breach notification laws, according to the National Conference of State Legislatures, and cyber policies help pay for notifying customers and fraud monitoring after a breach.
• Workers’ compensation: required in most states once you hire, including packers and warehouse help.
• Commercial auto or hired and non-owned auto: if you deliver orders or drive for supplies, because personal auto policies may not cover business driving.

How to get covered without overpaying

A few choices keep the cost down and avoid rejected certificates:

• Buy for the strictest platform you sell on. A $1 million per occurrence, $2 million aggregate policy meets both Amazon’s and Walmart’s minimums.
• Confirm the policy has no deductible, or one Amazon allows, before you buy, and get the exact additional insured wording onto the certificate.
• Describe every product category and sales channel accurately. A policy that excludes a category you sell can leave those claims uncovered.
• Consider a business owner’s policy instead of separate liability and property policies if you hold inventory.
• Compare quotes, since insurers price product risk differently. A broker such as Florin can compare options from several insurers.