Being an entrepreneur means you have to be prepared for everything; even the things you really don’t want to think about. That’s where proper insurance coverage comes in.
What is Product Liability Coverage?
Many makers understand the importance of having insurance coverage, but let’s face it…insurance can be complicated. Because of this, some makers end up with insurance coverage that won’t completely cover their business because one key item is missing: product liability.
When you think about why you need insurance coverage, one of the top reasons is probably a desire to be protected in the event that a customer has an adverse reaction a product you sell – that’s product liability.
We cannot stress this enough: product liability is absolutely crucial. Without product liability, you are putting yourself at serious risk of financial and business loss if a consumer brings a complaint against you or your company.
Do You REALLY Have Product Liability Coverage?
A very concerning trend has emerged in the handcrafted soap and cosmetic industry – makers who believe that they’re already covered by their homeowner’s insurance or have purchased product liability from one of the big-name companies.
The scary part is, they likely don’t have product liability.
According to Veracity Insurance, a standard home-based business policy (HO 07 01) excludes businesses that manufacture, distribute, or sell personal care and food products. While you might picture machines and factories when you think of a manufacturer, handcrafters are technically manufacturers and treated as such for insurance purposes.
As a maker and homeowner, even requesting information about coverage through your homeowner’s insurance company can be tricky. We’ve heard from makers that they’ve called their homeowner’s insurance broker to ask questions about what’s covered, only to be told that they don’t provide product liability or any coverage for businesses operated out of the home. This would definitely be an inconvenience on its own, but to make matters worse, the insurance company then denies coverage in its entirety – when this happens, your insurance rates, no matter who you find, will go up exponentially.
Because of the exclusion of personal care manufacturing businesses and the potential of losing home insurance coverage if you own and operate one, it’s vital that you’re fully understand the coverage you have, and the coverage you need.
We wanted to really understand whether or not these companies actually do offer product liability, so we contacted them. Spoiler alert: if you’ve bought liability insurance from your business from any of the larger companies like Allstate, State Farm, Progressive, etc., you likely do not have product liability insurance.
We contacted the six most well-known insurance companies in the US, and each one indicated that they do not offer product liability in the state of New York (where HSCG Headquarters is located). Additionally, several of them stated that they don’t offer product liability in many of the states, while the rest said that they don’t offer product liability insurance at all.
It wasn’t a clear cut “yes or no” about product liability right from the start, however. One of the companies initially told us that they did indeed provide product liability insurance. When they transferred us to a local office, they finally told us that they have general liability, but not product liability.
Questions You Should Ask
No matter where you buy your insurance, there are a few questions you need to ask the agent before you purchase to make sure you’re absolutely getting the right policy.
- Does your company offer general liability insurance AND product liability? Be very sure to ask this question and get a solid “yes” or “no”.
- Do you offer business personal property (inland marine) coverage? This isn’t coverage of your rented premises or that sort of property, but rather, things like equipment and ingredients that you should have covered. (We’ll be covering what personal property coverage is in depth in a future article.)
- What is the income cap? Some companies don’t cover makers who make over $5,000 per year in revenue, so this is a very important question to ask.
- What is excluded from my policy? Many policies, even policies designed for makers, do not cover candles – something that many soap and cosmetic makers product. Your chosen company should be able to produce a list of excluded products (and included ones, too). Additionally, if you make products containing CBD, make sure to ask specifically about coverage as many insurance companies will not insure products made using CBD.
- Is the policy available in all 50 states? Say you purchase a policy in California, but move to New York, a state that is excluded from some policies. This could be a real problem insurance-wise, so it’s a good idea to find a policy that’s available in all 50 states.
- Can I add an additional insured and if so, what’s the cost? There may be a time that you need to add another person to your policy, whether that’s a business partner or a landlord. It’s a good idea to ask this question upfront to avoid complications later on if someone needs to be added.
Where to Buy Insurance
There’s nothing wrong with the big-name companies and in fact, they’re great providers for other types of fundamental insurance coverages. As far as general, product, professional and property coverage for your handcrafted soap, cosmetic and candle business goes, we’ve got a few suggestions.
If you’ve visited the HSCG website, you may have seen RLI listed as an option; not for purchase through us, but as a comparison. RLI does have general, product and property coverage available. They do not cover candles however, and have an annual income cap of $5,000, making this a contender for makers who do not have a lot of sales but still want to be insured.
HSCG Insurance Options
The HSCG offers two insurance options to current members. HSCG policies are brokered by Veracity Insurance Solutions and underwritten by Great American.
Minimal coverage provides general and product liability up to $2 million, and optional professional coverage as an add-on. Additionally, the policy has coverage for candles, and is available in all 50 states and Canada (except Quebec) with no income cap. This is a good option if you’re new to the selling arena and don’t want to have property coverage initially, although we always recommend it.
Standard coverage provides the same benefits and coverages of the minimal coverage policy, but also has up to $30,000 in property coverage available. If you’re a professional maker with a business of any size, this is a policy that can give you serious peace of mind.
Handmade Artisan Insurance
Handmade Artisan Insurance has general and product liability available with coverages of up to $2 million, and an income cap of $100k per year. If you’re a candlemaker, it’s important to note that Handmade Artisan Insurance does not cover candles at this time and does not offer property coverage.
Indie Beauty Network
Indie Beauty Network offers insurance to their members, with up to $2 million in product liability coverage. Those purchasing insurance through IBN also have the option to purchase business personal property coverage for an additional fee. IBN’s policies are brokered by Veracity Insurance Solutions and underwritten by Great American.
IBN’s insurance policy is available in all 50 states and Canada (except Quebec), and does have candle coverage as well.
Which Policy is Best?
Obviously, we want you to join the HSCG so we can network with you, help you grow, and give you resources to make your goals happen! But ultimately, the “best” policy is going to depend on you and your business.
The best way to determine which policy is best for you is to actually look at a sample policy, and don’t be afraid to ask questions! If you don’t understand something or you’re not sure what exactly you’re reading, there’s no shame in contacting an insurance agent and asking them to explain the coverage thoroughly.
It’s also helpful to have an overview of your business and needs in front of you while you speak to an agent about insurance; write down what your business income is per year, all of the products you make, typical ingredients you use, the total value of equipment and supplies you have, etc. Having this available will help you communicate your needs accurately to whomever you’re purchasing from.
We know that navigating insurance, especially as new maker, can be confusing! That’s why it’s absolutely imperative that you confirm definitively whether or not your prospective carrier offers product liability. Don’t be afraid to ask for a clear “yes” or “no”!
If you currently have homeowner’s insurance or another policy purchased from one of the companies not listed in our recommendations above, we highly recommend calling them right away to confirm that you have product liability. It’s not unlikely that you have general liability through them, but it is highly unlikely that you have product liability which is critical.
You can learn more about what you should look for in an insurance policy here, and you can contact the HSCG’s broker, Veracity Insurance Solutions, at 888-568-0548 if you have questions about the policies we offer.