Why You Absolutely Need Insurance Before You Sell a Single Bar of Soap

Some of the most common questions I get via my contact form here on Modern Soapmaking are:

• Why do I need insurance to sell my soap?
• Do I really need insurance before I start my soap company? 
• Where can I get the right kind of insurance?

Photo by Alan Cleaver

Hurray! Insurance! It's such a fun topic. (Can someone wipe this sarcasm off me?)

Here's the deal. I know insurance is expensive. I sympathize, I really do. I've been paying for insurance annually for over five years now, even though I don't really sell soap anymore. Why? Well, let's find out by answering these questions!

Why do I need insurance to sell my soap?

Product liability insurance protects you from claims made against you as the manufacturer and seller of your products, including soap, lotions, lip balm, and more. It's a common misunderstanding that if you formulate your products correctly, you don't need product liability insurance because nothing can go wrong.

Product liability insurance doesn't just cover your rear from the formulating perspective, it also comes into play when a consumer makes a claim that a product is not properly labeled or had insufficient warnings for their personal needs. For example, say you make soap with oatmeal, and do not provide a warning that the oatmeal is processed on the same equipment as wheat. 

Plus, obtaining insurance coverage from one of the recommended places below will also replace damaged product. Have you ever been at a show that got rained out and you lost hundreds of bars of soap? Yeah, that's not fun.

Product liability insurance isn't just necessary for manufacturers. If you buy soap in a private label or custom manufacturing agreement, and then resell it, that action places you in the stream of commerce that puts the product in a consumer's hands. In the event of a claim, it is entirely possible for every company along the stream of commerce, from the manufacturer to the seller, to be involved.

Do I really, really, really need insurance?

Yes, yes, yes. A claim from a consumer can put you out of business, and even suck your personal assets dry. Product liability insurance provides a safety net to help you deal with any claims. Even if the hundreds of soapmakers you know say they have never dealt with a claim, putting yourself at risk is not a smart move.

You could make PERFECT soap, but a consumer could still have a reaction due to an allergy or medical condition and feel that you are responsible for not protecting them.

Do I still need insurance if I don't sell my soap?

A million times over, yes.

If anyone besides you uses your soap or lotions, etc., you need product liability insurance. Even if a consumer does not purchase a product from you, they can and will hold you liable for the product.

Let's say you give your Aunt Jemma ten bars of soap because she totally loves it. And then she gushes to her co-workers, and Susan asks Aunt Jemma if she can try a bar. Wanting to share the love, Aunt Jemma gives Susan a bar of your fabulous soap, and then Susan has a strong reaction to it. Susan has to go to a doctor, and racks up some medical bills, and finds out it's because she's allergic to coconut oil. Guess who she's going to go after to pay her medical bills?

How about if I just teach soapmaking?

Yes, you still need insurance. When you teach others how to make soap, you become liable for their actions in learning how to make soap. If they learn how to make soap from you, and then hurt themselves, they are going to hold you responsible!

Photo by David Hilowitz

Fine, fine, I get it. Where can I get the right kind of insurance?

There are three common ways soapmakers get the proper insurance they need to give & sell their products to others.

RLI Corp* offers home-based business insurance for under $5,000* in gross sales. If you are a hobbyist or just starting out, this is the perfect coverage for you and lets you get your feet wet. They do not insure chandlers, but do cover the basic categories of bath and body products.
(*Update December 2017: A rep from RLI's subsidiary group, Lindbergh, contacted us saying they will be raising their sales threshold to $7500 soon, with the change in effect for all states by May of 2018. You can reach them directly for more info: www.insuremyhomebiz.com.)

If you are anything like I was, you might surpass $5,000 in gross sales your first year in business, so you need a better option. There are two trade organizations in our industry who offer comprehensive insurance as a benefit of membership. You must join the trade organization to be eligible to purchase insurance coverage with either organization. I personally am a member of the Indie Business Network, and there is also the Handcrafted Soap & Cosmetics Guild. Both organizations offer a slew of other member benefits on top of the insurance!

If you are also teaching soapmaking, you need to upgrade your insurance policy to include that coverage. It is not included by default.

Update: We wrote a much more thorough article about the insurance options you have as a small business and answered a TON of common questions. Read up here: How to Understand & Get the Soap Business Insurance You Need

But I have homeowner's insurance and it works just fine.

To be honest, it probably doesn't! In most cases, this is a general liability insurance and not a specific product liability insurance policy that directly covers the manufacture and sale of soap and cosmetics. The insurance benefits offered by both the Indie Business Network and the HSCG covers both general and product liability insurance.

Which organization should I go with?

Honestly, the trade organization you go with is entirely a personal choice! Both organizations offer a multitude of benefits outside of insurance, and you should choose the one that you feel is going to work the best for you! :) In a coming post, I'll share a few of the differences between the two. :)

So, there we have it. Why you absolutely need insurance before you start selling your soap, or even giving it away.

And yes, I do realize some soapmakers choose to go without insurance. If that's you, please consider otherwise. This topic does tend to get a bit heated in debate, so if you choose to participate in the comments, please remember to be respectful. ;) That being said, I'd love to hear from you!

Update: We wrote a much more thorough article about the insurance options you have as a small business and answered a TON of common questions. Read up here: How to Understand & Get the Soap Business Insurance You Need