What may be a soap-making hobby for some is a business venture for others. Soap-making businesses are an excellent way to create a sellable product using creativity and expertise. And as soap is sold in numerous markets (farmer’s markets, private sales, online retailers, and stores), a soap-making business is quickly profitable.

Beyond the craft of making, marketing, and selling soap, a business plan also needs insurance for liabilities. A lawsuit could bankrupt a small uninsured company, but fortunately, various insurance policies exist to protect each layer of the company.

Related: Guide to starting a soap making business

What Are Some Risks for a Soap Making Business?

Some of the risks that a soap-making business encounters include the following:

• Automobile accidents
• Fire damages
• Employee injuries
• Extended closures
• Client injuries 

The risks listed above are a simple snapshot of possible liability exposures, revealing the significance of having a well-rounded insurance portfolio.

Automobile Accidents

A soap-making business has a sizable exposure to car accidents because the business’s drivers make deliveries and drive to markets to promote and sell products. For example, a soap-making business will drive to numerous cities—or even states—to sell products at farmer’s markets, conventions, and pop-up shops.

Although some soap-making businesses use a carrier for deliveries, some use in-house delivery drivers. As such, the business’s driver may traverse across city and state lines making deliveries. The risk of car accidents increases when the driver is in unfamiliar locations, driving during inclement weather, or driving during times of poor visibility.

Fire Damages

The risk of fire is a significant concern for a soap-making business. Producing soaps and detergents involves using chemicals and equipment that can increase the likelihood of a fire. For instance, benzene and alcohols are highly combustible products used in soaps and detergents and often used next to heat-producing equipment. This combination of flammable products and heat-producing equipment can increase the likelihood of a fire. Further, soap residue build-up, testing areas, and chemical storage are additional factors that increase the probability of a fire.

Fires often begin from malfunctioning equipment, dated wiring, or smoking. In addition, flammable packing materials, such as cardboard, paper, and plastic, are also flammable and can facilitate a fast-spreading fire.

Employee Injuries

Employees can experience injuries from slips and falls at work, but additionally, they are at risk of more severe injuries during the soap-making process. Employees come into contact with harsh chemicals and hot equipment to make soap products. When misused, the employee may injure themselves and suffer burns and skin irritations.

Moreover, fumes can cause eye and nasal passage irritation, especially if the employee doesn’t wear protective gear. Thorough training, safety measures, and good housekeeping will prevent most workplace injuries. However, incidents still occur, which is why insurance is equally important.

Extended Business Closures

An extended closure can halt production and lead to an extensive loss of income. Relocating during a shutdown helps alleviate a loss of revenue, but depending on the soap-making business’s size, securing a suitable temporary location may be an impossible feat. 

For example, bigger operations often have specialized equipment that is challenging to replace. Also, the business faces the challenge of finding a big enough space and spending the time to set up the equipment safely. Many soap-making businesses often have custom-built equipment that needs extra time to re-make or repair. In contrast, smaller operations may not face a prolonged interruption but can still lose income while regular operations have stopped.

On a separate note, suppliers that experience an interruption will cause delays that set back finances and harm the business’s credibility.

Client Injuries

Creating consumable products has the inherent risk of causing accidental injury or harm. For example, a mislabeled or an incorrectly manufactured product can damage property, cause skin or eye irritations, trigger allergic reactions and illnesses.

The most common claims against a soap-making business involve eye or skin irritations and damage to laundry. However, the business can help reduce these claims with thorough training and ensuring measurements, testing, and labeling are done correctly.

What Types of Insurance Should a Soap Making Business Consider?

Given that risks are prevalent in any industry, insurance is essential for setting up a sound and protected company.

A handcrafted soap-making business should consider the following insurance policies:

• Commercial automobile 
• Property damage 
• Workers’ compensation
• Business interruption
• General liability

Commercial Automobile Insurance

Commercial automobile insurance covers company-owned vehicles. This insurance policy covers fleets of vehicles and specialty vehicles, such as modified vans. Since travel is likely a daily occurrence for a soap-making business, insurance for liability, collision, and comprehensive damage is essential. Vehicles are often one of the more significant business assets, making automobile insurance a necessary policy.

Commercial automobile insurance covers the company’s liability in an at-fault accident, including claims for bodily injury and damaged property.

In addition to liability, collision and comprehensive coverage insures damages that occur to company-owned vehicles. The collision coverage insures damage resulting from at-fault accidents, while comprehensive coverage insures damage from vandalism, theft, falling objects, and wind or hail.

Property Damage

The business’s physical structure and equipment need well-rounded insurance coverage since the risk of fire damage is substantial. Often, business property damage coverage is included in a business owner’s policy and protects the business’s building and its equipment, furniture, inventory, and supplies.

If you are manufacturing in your home or garage, homeowner’s insurance does not typically cover business assets or losses due to business activity.

Commercial property insurance protects against perils such as fire, wind, hail, theft, and vandalism. Normally, insurance covers the structure at the cost of rebuilding or repairing the damage. In contrast, the physical items are covered on an actual cash value (ACV) basis or at a replacement cost basis, which is a higher level of coverage.

Workers’ Compensation

Workers’ compensation is a vital insurance policy for any business with employees. This coverage is particularly beneficial for a soap-making business since employees work with harsh chemicals and hot equipment.

An employee injured on the job may incur hefty medical bills and be unable to work. As a result, the employer could be held responsible for the expenses following an employee injury; therefore, coverage for employee injuries is beneficial to protect the business from lawsuits and large expenses. A workers’ compensation policy offers insurance for costs such as:

• Lost wages
• Medical bills
• Ongoing and rehabilitation care
• Funeral expenses

Business Interruption Insurance

Following a substantial loss, such as fire damage, the business may be required to close operations while repairs are made and equipment replaced. During this interruption, the business will either need to temporarily relocate or halt production for a time. Either way, the interruption introduces a financial challenge.

Relocation is not always feasible, and replacement equipment and parts are sometimes hard to come by. Despite these challenges, business interruption insurance protects a business from financial hardship following a disruption. This policy offers coverage for:

• Lost income
• Payment on regular loans and bills 
• Coverage for typical expenses
• Employee wage coverage 

Business interruption coverage is not usually a stand-alone policy but is added to a business owner’s policy. Generally, coverage is limited to 30 days.

General Liability Insurance

General liability and product liability insurance is normally included in a business owner’s policy. This line of liability coverage protects the company against lawsuits for bodily injury and property damage claims resulting from the use of the products. For example, if the business incorrectly labels a bar of soap and a customer suffers skin irritations or an allergic reaction, the business could be sued.

However, general liability coverage offers protection for claims resulting from negligence. Coverage included in the policy consists of the following:

• Medical bills
• Property damage repairs
• Legal defense fees 
• Settlements 

How Much Does Insurance Cost for a Soap Making Business?

Insurance costs differ for each soap-making business based on the required coverage amounts. For instance, a small, home-based business with no employees will need far less coverage than a large operation with employees, a warehouse, and a fleet of delivery trucks.

Coverage limits and risk exposures are the main factors in determining cost. Some aspects that influence cost include:

• The size and condition of company-owned structures
• The number and type of equipment
• The number and type of vehicles to be insured
• How many employees are on the payroll
• Any existing or past lawsuits or claims

Nevertheless, the best way to determine the cost of insurance options is to call a company for a quote. The quote is modified to the unique needs of your soap-making business so that you neither overpay for unnecessary coverage nor under-insure your business. A well-rounded insurance portfolio is essential to protect your business from financial hardships following an incident or claim. And, as a tip to ensure you get the best value on your policies, call multiple companies to compare quotes.

Resources:
Handcrafted Soap and Cosmetics Guild (HSCG)