Definition of Recall Insurance

Toy manufacturers often buy product recall insurance because toys are frequently recalled for safety reasons.

If a company produces a product that must be recalled, the costs associated with the recall process can be significant. Recall insurance, more commonly known as product recall insurance, insures businesses for expenses related to the recall of one of their products. Companies that sell safety products, food, medical products, toys, electronics, furniture and exercise equipment are the most frequent buyers of product recall insurance.

Expenses

It is costly to recall a product. The company must identify the product that must be recalled, communicate with customers about the product defects, inspect returned products and repair or replace the product.

Recall Types

There are two types of product recalls: voluntary and involuntary. A voluntary recall occurs when a company notices a defect in its product and recalls it on its own. An involuntary recall happens when the government or a regulatory agency demands a recall.

Exceptions

There are several products that are not covered under product recall insurance. These include explosives, tobacco, parachutes, tires, medical implants, latex gloves, child car seats, nuclear materials, coffins and automobiles.

Premiums

Generally, the minimum premium for product recall insurance is $15,000 as of 2010, according to the Sadler Products Liability Insurance website. The maximum premium typically is $10 million. The minimum deductible for product recall insurance is usually $25,000.

References

• All Business: Business definition for product recall insurance
• Investopedia: Product Recall Insurance
• Sadler Products Liability Insurance: Product Recall Insurance