Insurance Risks and Real Estate
|Copyright 2014 by Virgo Publishing.|
|By: Amy Brown|
|Posted on: 02/01/2005|
You’ve decided to purchase a self-storage facility and you need to buy insurance. Many buyers want to know how much to put in their pro formas for this coverage. While there is no black-and-white answer, there are factors that contribute to the insurance premium. Knowing them in advance may help you determine what to expect.
Location not only determines the possible resale value of a property, it affects insurance rates. Insurance companies evaluate potential policyholders in terms of risk exposures and the unique characteristics of each site. Storage facilities in high-risk locations may pay more for coverage or have trouble obtaining it altogether. Businesses in low-risk areas generally face fewer obstacles. Following is a partial list of exposures that can affect insurance in your area:
Weather. Locations exposed to extreme weather conditions may be considered high-risk. Areas are usually divided into territories based on their history of loss from perils such as windstorms, hail, tornadoes and hurricanes. Facilities in regions with records of high losses will have higher rates than those in areas of low risk.
Fire-protection class. Location also relates to a facility’s level of fire protection, as the distance of a site from a fire hydrant and station will affect response time in the event of a fire. Call the local fire department to determine your fire-protection class code. Insurance companies use rating schedules, which assume a facility inside a city or town with adequate fire protection is safer than a property outside the city limits. Those outside the limits will face higher premiums. Insurance coverage can also be affected in areas with a limited water supply.
Neighboring structures. A facility faces external exposure when it is near any other structure or potential source of fire, assuming fire in the other structure could spread. This may affect insurance rates. As a general rule, your facility grounds and those of neighboring buildings should be kept neat and orderly. This puts all adjacent property at lower risk for fire than those surrounded by debris.
Crime. Self-storage facilities in industrial and inner-city areas may be more susceptible to burglary, vandalism and other criminal activity, which can also hike insurance premiums. Some statistical research can help you determine the amount and types of crime in an area. In addition, take a drive and see how well the community is maintained. Consider locations in neighborhoods that demonstrate “pride of ownership.” Facilities with access gates and strong security implementation will have better insurance rates.
Building Age and Construction
A building’s construction—whether it be wood frame, brick, concrete or noncombustible masonry—establishes a basis for its insurance costs. The use of fire-resistant materials, as well as the installation of sprinkler systems, fire extinguishers and alarms, may reduce the amount of loss during a fire. The result is reduced risk exposure and lower insurance premiums.
A building’s internal structure can affect ratings too. Filling otherwise fire-resistant buildings with wood partitions, floors and stairways nullifies many of the benefits of its construction, while flame-retardant separations and doors can help preserve the structure’s integrity. The size and design of a facility will determine its overall value, which may also affect the insurance premium.
Finally, the age of a building is considered, as a facility will require additional repair as it gets older. Maintenance is vital. If you are purchasing an older facility, make sure it was properly cared for by the previous owner. Have it professionally inspected for items such as leaking roofs and proper electrical wiring.
Purchasing a self-storage facility can be exciting and lucrative. Identifying and correcting risk exposures and securing adequate insurance coverage is a good way to protect your business from property loss and liability. An insurance agent specialized in self-storage can help you identify the coverage you need.
This article is a guideline to aid in minimizing risk in self-storage. Theinformation it contains is intended to be of general interest and does notaddress the circumstances of any particular individual or entity. Nothingin this document constitutes legal advice, nor does any informationconstitute a comprehensive or complete statement of the issues discussedor the laws relating thereto.
Amy Brown is part of Universal Insurance Facilities Ltd., which offers a comprehensive package of coverages specifically designed to meet the needs of the self-storage industry. For more information or to get a quick, no-obligation quote, call 800.844.2101; e-mail firstname.lastname@example.org; visit www.universalinsuranceltd.com.