If you plan to manufacture and sell handcrafted soap & cosmetics to the public, you need to have both general & product liability policy in place to protect you, your business and your personal assets. Without suitable coverage, a claim made against you, your business or your products could potentially go after any and all of your business and personal assets.
What does a "General Liability Policy" cover?
General Liability insurance protects a company's assets and pays for obligations (medical costs) if a person gets hurt on your property or when there are property damages or injuries caused by you or your employees. For example, if someone trips on a cord at your craft fair booth, or is splashed by wet soap when you are doing a demonstration of soapmaking.
This coverage can also cover you against any liability as a tenant if you cause damage to a property that you rent, and can also cover claims of false or misleading advertising, including libel, slander and copyright infringement (check your specific policy). It does not cover you if someone is injured by using a product that you make or sell (see below).
What does a "Product Liability Policy" cover?
Product Liability Insurance covers the policy holder in the event that a suit arises from the use of the insured's products which might be brought due to loss to personal property, business property, injury or death. The coverage is designed to protect the business against losses even if they are negligent or liable for damage, injury or loss to another's property. Damages, legal fees and settlement charges are paid by the insuring company when a claim is filed against the business as a result of a Product Liability suit. The coverage will cover the insured for suits that arise out of damage or injury of use of a product that the holder of the insurance policy manufactures or sells.
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Sources of Insurance Coverage
As a start-up business you can obtain General & Product Liability from various sources:
If you are just starting out and do not yet make in excess of $5,000 in gross sales and you do not manufacture candles, RLI Insurance may be the proper fit for your business. RLI will cover your business with a General & Product Liability Policy for around $230-$300 per year. Once you reach $5,000 in gross sales, your coverage with RLI will be terminated and you will have to seek an alternate source for your insurance. See RLI Insurance for details.
HSCG Member Benefit Insurance
The HSCG offers members (in the US and Canada) low cost General & Product Liability Insurance with $1M coverage. It is a member benefit, the cost of which is $375 (+$5 admin fee) for US Members and $395 (+ tax) for Canadian Members per year. Coverage may be increased to $2M, and additional property or professional coverage may be added. Read more about the policy or the insurance FAQ to decide which policy best fits your start up business.
Additional Coverage to Consider
You may also want to consider Property Coverage for your business. Property Coverage is also called "Inland Marine Insurance" in the United States. It indemnifies (protects against) loss to movable or specialized types of property, such as computers and systems, tools and equipment for artisans, photography and camera equipment and more. It does not apply to structures and buildings (a separate policy would be needed for this).
The HSCG General & Product Liability Policy does have Property (Inland Marine) Coverage included (to $5,000) and additional coverage can be purchased.
Professional Liability is another add-on that a business may want to consider if they are engaged in teaching others how to make handcrafted soap and/or cosmetics. Professional Liability covers the teacher in the case that a student makes a claim or acts on advice or instruction that they received and tries to hold the teacher liable.
The HSCG Policy has a purchasable add-on for professional liability coverage.
Your homeowner's insurance will NOT cover you for product liability; it MAY cover you for general liability, including liability arising from a home-based business.
Check your home-owners policy!Some homeowner policies do not allow home-based business or limit the types of allowed businesses In that case, having a business (or disallowed business) in your home might void your coverage. CHECK WITH YOUR HOMEOWNER INSURANCE CARRIER TO MAKE SURE YOU ARE STILL COVERED IF YOU RUN YOUR BUSINESS OUT OF YOUR HOME.
Farmer's Market policies
Some Farmer's Markets offer coverage to their members/vendors. Check the policy carefully; this type of policy usually covers general liability only and only while at the Farmer's market. It is unlikely to cover your other business activities or to offer product liability coverage.