An insurance policy is required for all Amazon sellers, but it’s particularly important for those who sell health and wellness products. Insurance for Amazon sellers is a combination of General Liability and product liability insurance. It will cover what you do or say as a business and also protect you if your product harms someone else.
When does Amazon require liability insurance?
When a seller crosses the threshold of $10,000 in sales per month, it triggers Amazon to verify proof of insurance coverage. If this is missing, Amazon will issue suspension threats.
For health and wellness sellers, it’s even more important to know your insurance options before you are under such threats, due to the specific liabilities of this market. Amazon will cover claims under $1,000, but you are liable for anything greater than that.
Why should you buy Amazon seller liability insurance?
When weighing the cost of litigation, an insurance policy is a comparatively inexpensive way to protect your business. If a product is defective or causes injury, or even if a customer thinks it causes injury, you will incur some legal fees.
Quotes are based on your estimated annual revenue, so a typical policy will cost $500- $1,000 per year, far less than the cost of a lawsuit. Here are some specific cases where additional coverage will save you money and time.
1. Counterfeit Claims
Consumers are wary of products they think may be counterfeit. They could claim that your Health & Wellness product is fake even if it’s genuine, which could result in negative feedback or account suspension.
If your brand changes a product formula, it may change the product color or texture, triggering concerns for recurring customers. Mitigate this risk by updating your product descriptions, so consumers see the same product they’ll receive.
2. Automated Enforcement of Health & Wellness Policy
In addition, Amazon uses an automated system to find keywords in listings to enforce their policies, which can cause unfair suspension. For example, in 2018, health and wellness sellers who used words such as “non-toxic”, were mistakenly labeled as a pesticide. Such misidentification could trigger a warning or even a suspension.
Even if you’re in the right, Amazon can stop sales and hold your funds while they verify your products.
Another risk of Amazon’s automated regulations is unfair denied approvals for selling certain products. Many health and wellness subcategories are gated categories, which means you may have to apply for approval from Amazon to sell, as well as provide evidence and pay a $1,500+ approval fee. Oftentimes, the process is automated, so when something goes wrong, it’s hard to correct the issue promptly.
3. Unauthorized Resellers
Brands are particular about who sells their products because it can impact their reputation. If another seller starts to resell your products, customers may report them as counterfeit to Amazon. Amazon could place a hold on your Seller Central account while under review.
Additionally, private labeling of health and wellness products can be challenging because of regulatory restrictions. A good insurance policy could protect you against these risks.
4. Damage to Goods
Fulfillment by Amazon (FBA) has several advantages, but one significant disadvantage is an increased risk of damage. Products spend more time in transit since they are first shipped to the warehouse and then to consumers and may also be handled improperly at the warehouse.
When storing health and wellness products, variables such as temperature regulation, humidity, expiration dates, shelf-life, spillage, and leaks are important. Poor planning on behalf of the fulfillment center can lead to inventory loss.
Inventory coverage is not automatically covered under a normal Amazon liability insurance policy. You have to apply and get coverage for inventory. There are lots of restrictions on what is covered and when. For example, if you are shipping items from overseas you would need cargo insurance. However, you'd need business personal property coverage if it is stolen out of your home. This is why it is SO important to work with an agent who can protect you the right way. I’m a fan of my own practice, Ashlin Hadden Insurance, but you’ll want to work with a professional regardless.
5. International Regulation
For those wanting to sell internationally, they will likely encounter higher product scrutiny and different regulations. For example, if a product is shipped overseas and then not approved, listings for that product will be shut down and the items need to be shipped back or destroyed at the seller’s expense. You may also be stuck with unsellable inventory for products you could sell previously but no longer can due to changing regulations.
Note: Vitamins, supplements, and nutraceutical products require worldwide coverage because anyone in the world could bring litigation against their US market purchase. This does NOT mean you have a global policy, as it only covers you if your US business operation is sued, not if non-US business operations are sued.
How do I get Amazon seller liability insurance?
Ashlin Hadden Insurance is an industry-leading agency for eCommerce sellers with over 7,000 satisfied clients. We know exactly what type of coverage you need as well as what Amazon requires in order to keep you compliant. We are excited to welcome new health and wellness sellers to the Ashlin Hadden Insurance family so Ashlin can protect your assets, too!