Liability Insurance?

Honestly, it all depends on what your selling and who you are selling to. An example is electronics. When a house burns down, the lawyers sue the manufacturer of every electronic in the room (never mind the tray full of cigarettes they found). In some cases they may sue the seller, if they feel the pockets are deep enough.

Remember, you can mitigate risk, or you can finance it. You mitigate risk by:

1. Having a corporate entity (Corp, S Corp or Multimember LLC) that insulates you from claims to the company.
2. Strong terms and conditions that customers have to click and agree which includes protecting you in terms of venue (you agree to sue me in the state I live in) and limiting damages (I am not paying out more then what you paid for the products). Many carts have this functionality you can turn on.
3. Risk Transfer - this is harder since you are the small fry but most PO's do not see the manufacturer transferring their risk to you. If you have ever worked a trade show you will know you have to provide the venue with a cert of insurance and add them as additional insured. This is the venue transferring the risk of slip, trips and falls to you.

Risk Financing - Better known as Insurance, is just one of the tools you have. A package or "business owners policy" should run you less than $1000 a year especially given you won't be using workers compensation (assuming you have no employees). I suggest going with a broker over your normal auto, home and life broker as a small business broker will know what you need better.

Ironically, out of all I just said here, you never mentioned the risk that many of us are not concerned with, and most likely should, which is a data and privacy breaches. These breaches will not be covered by your package policy and the laws around the world are getting more strict in how we deal with privacy breaches. If you are in the Euro zone and have a privacy breach, you are supposed to report it to the local privacy regulator which will determine if you are required to notify customers.

We mitigate it by

• Using PayPal
• Using a PCI compliant gateway
• Using a PCI compliant shopping cart
• Never storing credit cards
• Strong Passwords
• Keeping your cart updated with security patches.
• SSL certificates
• Strong anti-virus

That is why many of us use the hosted shopping carts that are PCI-DSS Level 1 compliant. It transfers any of those risk over to the cart provider. If anyone is interested, a colleague of mine just did a webinar on cyber risk and I can share the link if you want. It is aimed towards large companies but lots of interesting data in it.

You will want to find one local to where you live since insurance is pretty much regulated at the state level. Interview about 3 different brokers and get a feel for what each one might do. Believe it or not depending what bank you are with they might even have a decent broker (wells fargo for example owns a decent sized brokerage operation).

The concern you are going to have is understanding what kind of testing have been done on your cosmetics to ensure they are safe for humans. At the very least have an independent lab provide a report on toxicity you can provide to the underwriters to mitigate any concern they have over claims. Also, anything your manufacturer can provide you on their background in this industry, how long they have been doing it, any certifications, licenses or agreements would go along way.

The other thing you need to consider is your property policy and understanding what your contingent business interruption risks are. CBI, is used by companies to provide claims in the even something happens to a contract manufacturer. If the CM factory burns down, how much business will you lose? Will you have penalties with retailers you sell to for not delivering in time.

All these things a good broker should be able to help you with.