When hardware startups launch a new product, they aren’t just putting code into the cloud, they’re putting physical devices into the hands of real people. And that comes with very real risks. If something goes wrong—if a component overheats, if a device fails during use, or if a software bug leads to property damage or injury—the consequences can be severe. That’s why product liability insurance isn’t optional for hardware startups; it’s essential.

Let’s explore why the stakes are high, how risks are evolving, and how Vouch helps hardware startups get the right coverage from day one.

The High Stakes of Hardware

The stakes in hardware are inherently high because of the real-world implications of product failures. Defective hardware can cause bodily harm, property destruction, and expensive legal battles.

Real-world exposure

Product liability lawsuits cost U.S. companies a lot of money each year. In 2020, the average product liability case that went to trial resulted in over $7 million in jury awards. And that’s not taking into account settlements reached before a case gets to court.

Here’s what’s at stake:

• Medical expenses: If a product injures a user—say, through electrical shock, burns, or mechanical malfunction—the manufacturer can be held liable for hospital bills, ongoing care, and even loss of income.
  
• Property damage: A short-circuiting device could start a fire. A drone could crash through a window. Any physical product has the potential to damage third-party property.
  
• Legal defense and settlements: Whether or not your company is ultimately found liable, you’ll be footing the bill for legal defense, which can run into hundreds of thousands of dollars.

And that doesn’t take into account indirect impacts like reputational damage. Even a single high-profile lawsuit can significantly damage your brand, deterring future investors and customers. 

Product liability insurance serves as a financial safety net, enabling you to handle claims effectively without jeopardizing your startup’s survival.

Where Hardware Meets Software, Risks Multiply

Modern hardware isn’t just mechanical—it’s connected. From IoT devices and smart appliances to robotics and wearable tech, today’s products blend physical components with complex software and cloud-based services.

That convergence introduces new, compounded risks. Software bugs and firmware vulnerabilities introduce the possibility of critical software errors or exploitable firmware. If your cloud platform goes down or a mobile app update breaks functionality, users could suffer losses. Many smart devices collect sensitive user data and breach or performance failure could expose your company to cyber liability or breach-of-contract claims.

Insurance Built for Hardware Companies

Recognizing these multi-faceted risks, hardware startups require comprehensive insurance tailored specifically to their unique exposures. That starts with product liability insurance.

Understanding Product Liability Insurance

Product liability insurance protects your company against claims stemming from harm or damages caused by your products. This includes:

• Bodily injury from defective or dangerous designs
  
• Property damage resulting from malfunctions or improper warnings
  
• Legal fees and settlements if you’re sued

This type of insurance is especially critical for hardware startups because it directly addresses the physical and tangible risks posed by your products.

Additional Coverage

Given the interconnected nature of modern hardware, most companies should also consider Cyber Liability and Errors & Omissions (E&O) coverage. 

• Cyber insurance protects against the financial fallout from data breaches, ransomware, and other digital attacks. This includes coverage for customer notifications, forensic investigations, and regulatory fines.
  
• Errors & Omissions (E&O) insurance covers financial damages caused by service failures, bugs, or breaches of contract. For example, if your connected device’s software update crashes critical systems for a business client, E&O can help cover the resulting claims.
  

Together, these create a safety net for both physical and digital risks.

The Vouch Difference

Traditional insurers often struggle to serve hardware startups effectively. Legacy insurance providers typically require extensive operating history, penalize startups for limited revenue or scale, and may refuse coverage altogether for emerging sectors.

But ​​Vouch specializes in insurance for innovative companies at every stage. Whether you’re pre-revenue or shipping your first production run, we can help you secure the right protections.

• Product liability coverage at any scale: We don’t penalize you for limited production.
  
• Access to the broader insurance market: We help you compare policies across insurers, helping you get the right coverage for the right price.
  
• Expert advisors who understand hardware: Our team knows what it takes to ship devices, manage supply chain risks, and navigate safety regulations.

Plus, we don’t stop at product liability. We help hardware companies secure D&O, General Liability, Business Property, Workers’ Comp, and more, all under one roof.

Building hardware is hard. The margin for error is thin and the real-world consequences of failure are steep. But the right insurance can transform existential risk into manageable exposure.

With product liability insurance at its core, and essential add-ons like cyber and E&O, Vouch helps hardware startups protect their people, their customers, and their future.

Don’t wait until a partner, investor, or lawsuit forces your hand. Get ahead of risk today—start your application or try our coverage recommendation tool to see what your company needs.

This content is for informational purposes only and does not constitute an offer of insurance. Coverage is subject to underwriting, availability, and the terms, conditions, and exclusions of the applicable policy. Not all products are available in all jurisdictions. Please contact Vouch for more information.

Vouch Specialty Insurance Services, LLC (CA - 6004944 - vouch.us/legal/licenses)

‍