By Kay Schaefer
Your self-storage business faces plenty of threats: fire, water damage, dishonest acts, slips and falls, and so on. Fortunately, you can be protected from many causes of loss by having the right insurance. That’s why it’s important for you to have a good understanding of the policy you buy.
Before deciding which coverages to purchase, assess your risks. Your insurance company will evaluate the level of risk it will accept (called underwriting), and you’ll want to be aware of the hazards your operation presents. For a business property, these are affected by its location, construction type, fire protection and other criteria. Understanding these exposures will help you comprehend coverage options and pricing. There are some coverages you absolutely must have and others you may want to consider.
Make sure you have adequate limits of insurance to include all structures and your business personal property, such as office furnishings and equipment, maintenance tools, the golf cart, or the manager’s apartment furnishings. Most self-storage policies provide you with a “blanket limit” for your property, which means you can have one limit covering all your property, either at one location or over multiple sites. Also make sure your insurance coverage is on a replacement-cost basis, otherwise depreciation will be taken out of any claim payment.
Another thing to consider is whether your policy has a coinsurance clause. This is a provision that requires you to purchase insurance that’s at or close to the full value of your property. A typical coinsurance requirement of 80 percent means you’re supposed to purchase limits of insurance that are at least 80 percent or more of the full value of the insured property. Having a coinsurance percentage could result in a penalty when a claim is paid if you don’t have adequate insurance limits. Some policies are available with no coinsurance clause.
You can also consider including a deductible in your policy, which may help reduce the premium for your coverage. Keep in mind, however, that you’ll be responsible for paying the deductible amount before the insurance policy will step in to pay a claim.
Key Coverages
Business-interruption or loss-of-income coverage provides you with coverage for loss of income after a covered claim, usually the result of a direct physical loss to your property. This coverage is intended to replace your lost profit and pay for continuing expenses when part or all of your business is shut down because of property damage. In assessing your need for this coverage, consider what your monthly income is and how long it could take to recover from an event such as a fire or storm. Because your business will probably take some time to fully recover after a severe loss, even after repairs are complete, this coverage needs to include an extended period of indemnity, which will continue to pay your lost income while you lease up again.
Employee dishonesty is an optional coverage available for most package policies. Many employers suffer from “it can’t happen to me” syndrome. In fact, most employee-theft losses are caused by long-term, well-respected employees. Consider this as another must-have coverage to protect your business.
Your package policy will also include business-liability protection for damages arising from your ownership and operation of a facility. This coverage protects you from liability for bodily injury or property damage that occurs on site, such as someone being injured from a fall, a door accidentally dropping on someone, or a gate closing on someone’s vehicle.
You’ll want to review both the occurrence and aggregate limits. Occurrence refers to an accident, including continuous or repeated exposure to the same thing. Aggregate refers to the maximum amount payable in any one year. Deductibles or self-insured retentions can apply if you carry an umbrella policy for higher limits. Medical payments are usually included to provide some expenses without regard to fault.
Your operation also has exposures that are unique to self-storage, and there are two specialty coverages you’ll want to include in your package policy. The first is customers’ goods legal liability, which provides you with protection against claims of responsibility for damage to tenants’ stored goods. It pays defense costs and any damages for which you’re found to be responsible. The second coverage is sale and disposal liability, which defends you and pays anything you owe due to a faulty lien sale. The limits for both coverages should be reviewed based on your specific operation including items such as:
- Number of units
- Type of clients and value of property they may store
- Dollar limitation on the value of stored property addressed in your rental agreement
- Whether you offer tenant insurance or a tenant-protection plan
Specialty Coverages to Consider
There are other types of insurance policies you may want to consider. A few include auto insurance, pollution liability and workers’ compensation.
If you use vehicles as part of your business, an auto-liability policy is a must. You may also want to cover any physical damage to the vehicles, depending on their age and cost. Even if your business doesn’t own vehicles, you may still have an exposure if your employees are running errands, such as going to the bank, for your business using their own vehicles. Hired and non-owned auto-liability coverage is included or may be purchased with most self-storage insurance policies to protect you from this contingent risk.
Pollution coverage is offered in many self-storage package policies on a limited basis. Limited is provided, but the coverage is only triggered when there’s direct physical damage to the property. Most pollution events are caused by actions that don’t activate a covered loss on the package policy. There are policies available to cover the additional exposures due to pollution at your site.
If you have employees, you may be required to purchase a workers’ compensation policy, which provides wage replacement and medical benefits to employees who are injured in the course of employment in exchange for mandatory relinquishment of the employees’ right to sue their employer for negligence. In most states, sole proprietors and partnerships aren’t required to purchase workers’ compensation unless they have employees who aren’t owners in the business. Most states will allow sole proprietors and partners to cover themselves for workers’ comp if they choose. Some states don’t require employees to be covered if they’re paid solely on commission. Small companies with fewer than three to five employees may not be required to purchase this insurance, but it’s a good idea to evaluate your exposures and decide whether to assume the risk or buy insurance to cover it.
Determining which insurance coverages to buy can be daunting. To help define your needs, find an agent who understands your business. This is just as important as finding a good lawyer or accountant. An agent who specializes in self-storage will help you analyze your risks and find insurance that offers the right coverages to protect your operation.
It’s also important to review your insurance coverage with your agent annually. Your operation may change, and your property may cost more to rebuild in the future. Things happen. A regular review of your insurance coverages is an important part of making sure you have the right protection for your business.
Kay Schaefer is the senior underwriter for Deans & Homer, an insurance managing underwriter that has provided specialized coverage for the self-storage industry since 1974. She has more than 30 years of experience in writing unique insurance coverage. For more information, call 800.847.9999; visit www.deanshomer.com.
