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The Basics of Tenant Insurance

Chuck Slagle Comments

Insurance is a safety net. It is a formalized risk-transfer mechanism that relieves selfstorage owners from a certain amount of financial worry over fires, tornadoes, lawsuits, etc. Historically, facility operators have only been concerned with covering their interests in their properties and protecting themselves from lawsuits resulting from bodily-injury claims. In either case, storage operators need to protect their investments with specialized insurance programs.

There are programs designed to cover the risks specific to the storage industry, including customer’s-goods legal liability and sale-and-disposal liability coverage's. However, many self-storage owners now use tenant insurance as a risk-management tool. Potential liabilities are reduced when problems are transferred to an insurance company for resolution. Court cases have established—and continue to confirm—legal precedents reducing owners’ and operators’ liability where tenants have the ability to buy separate, optional insurance protection.

Another benefit to tenant insurance is it acts as tangible evidence to the customer that the storage site has a high level of security. An insurance company will not approve a facility for coverage unless certain minimum standards are met. These usually include, but are not limited to, a fence and gate, limited access, adequate drainage and security lighting.

A recent article reported that a typical self-storage facility spends as much on security as a bank branch. However, 26 percent of all self-storage facilities still reported at least one incident of theft in 2002. Statistics like this, coupled with standard coverage limitations in homeowners’ insurance, show the need for optional tenant insurance programs at self-storage facilities.

Why It Works

When the self-storage industry started in the 1970s, tenant insurance emerged from a need in the marketplace. Not only was it difficult for facilities to find insurance, but tenants often had trouble finding coverage for their goods in storage. Special insurance programs were eventually developed to plug this gap and provide an element of security to owners, operators and tenants.

While most tenants store goods for lack of home space, many need storage because they are between homes and don’t have the limited protection of a homeowners’ policy on which to rely. Homeowners’ policies often restrict coverage for goods placed in storage, excluding burglary or water damage. Optional tenant-insurance programs offer a solution to this dilemma. When a covered customer has a property loss, he will go to his insurance company to resolve the issue rather than to the operator for reimbursement. He understands the insurance company will resolve the problem.

Tenants also feel more secure about the rental process when they know they can obtain insurance at a facility. They are leaving their property with an unknown third party and want to know it can be protected. Insurance attests to the facility’s desirability, as it must meet certain criteria before insurance can be made available at the site.

How It Works

The success of point-of-lease insurance programs depends on several critical issues: the commitment of the owner/operator, lease language, and the attitude of the manager. Without a firm commitment from upper management to make tenant insurance an integral part of the rental process, the program will not succeed. One of the keys for owner/operators is they are protecting themselves from a lawsuit for lost or damaged goods. The more tenants with coverage, the fewer times the operator has to pay out-of-pocket expenses or go to court to defend himself. If he faces a courtroom situation, a signed lease addendum regarding tenant insurance can help reduce his liability. In addition, when an unforeseen disaster strikes a facility, it is easier for a manager to call a tenant who has coverage on his property, as his losses are not as severe.

Your lease is an important tool that can provide a vehicle for discussing tenant insurance. If your rental agreement requires insurance, inform your managers that customers must comply. If your agreement does not include this requirement, be sure your managers offer insurance as a strongly recommended option for all moveins. A signed lease addendum acknowledging the need for insurance, whether or not the tenant purchases it, must be obtained from all tenants. This is especially true if insurance is declined.

Managers should understand the importance of tenant insurance and how they benefit. They must be committed to a tenant- insurance program. They also need to be aware of the added sense of security tenants feel when their property is protected. They must see the advantages for their customers and be able to communicate them. This is important because the manager is the key person in the relationship with the tenant.

One of the concerns managers have expressed is they do not want to “sell” insurance. Site managers should not explain policies to customers—that is an insurance agent’s job. State insurance regulations allow non-licensed personnel to perform only certain tasks: They can provide assistance in the insurance process by enrolling eligible tenants and collecting premiums. Their role is very similar to employers who offer group insurance plans to their employees. Any problems or questions should be referred to the insurance company.

Two Options

There are two program options for selfstorage operators offering tenant insurance: mail-order and pay-with-rent. Many companies offer mail-in programs in which a tenant is given a brochure for insurance when he signs his lease, and the tenant is responsible for filling it out and sending it in. These programs have very low participation, averaging a 1 percent return. Not many people like to buy insurance unless it is required or otherwise recommended. Not only that, but there may be a delay in obtaining coverage, as the policy only goes into effect when the insurance company receives the tenant’s premium.

Pay-with-rent programs are very successful. Coverage is offered during the leasing process and is usually effective as soon as the unit is rented. The tenant pays for the insurance each month with his rent. Software makes the accounting simple, providing month-end reports and up-to-date information about the payment history. Storage customers buy insurance through pay-with-rent programs because it is convenient and affordable.

Some operators achieve high participation rates with different approaches. One waives either the security deposit or administrative fee when insurance is purchased. Another includes the first month’s premium in the administrative fee until the tenant brings in evidence of alternative coverage through his homeowners’ policy. Since most homeowners’ policies do not have this coverage, the tenant insurance remains active.

Choosing a Provider

Choose your tenant-insurance provider with care. Insurance companies that offer pay-with-rent tenant coverage will provide training and supplies for managers. They should also have some form of instructional video and point-of-lease materials, such as posters, counter cards and brochures, that describe coverage and answer frequently asked questions. The purpose of these items is twofold: increasing customer awareness of insurance needs and reinforcing the manager’s comfort level with offering tenant insurance.

Your provider should be able to issue policies promptly and provide for settlement of claims. The latter is especially important, as it allows an operator to step back from an uncomfortable situation with a tenant. Another important factor to consider in choosing a provider is its experience and ability to work with the self-storage industry and the tenant-insurance product in particular. Most insurance companies will pay a referral fee to the owner/operator for his help in offering the program.

To be successful, you will need an insurance program specifically designed for your tenants, one that is affordable, and easy to implement and offer. You will need to be committed to making the program work, as well as managers who will offer the program in a positive manner. In the end, you will be rewarded with a high participation rate that reduces your liability and provides an ancillary source of income. With some supervision, encouragement and planning, a successful tenant-insurance program will pay dividends for everyone—you, your managers and your customers.

Chuck Slagle works with self-storage owners and operators across the country to provide them Stored Property Insurance from Bob Bader Co. For more information, call 888.223.3726 or e-mail

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