Hi LOLA ROSE
Just a thought why not embark on a course for making products, you then could get the proper insurance through them? Aromantic do such courses and the insurance is not that expensive after you have done some training. You learn to make loads of different products including bath bombs, shampoo, conditioners, massage bars, eye gels and even make up the list just goes on and on. They hold courses both in London and Scotland (not sure where there) the web site has all the dates, fees ect, and is www.aromantic.com. Its worth a visit just to look at some of the recipes.
They also hold a course for the business side of things, as it can be very complicated with all the laws on labelling etc..
As for the muslin bags, try lakeland plastics as they sell small squares of muslin which you could tie to make little parcels.
Hope this helps
Love and light