Going through an event that leads to an insurance claim can be a traumatic experience. Making a claim and recovering the covered amount from your insurance company shouldn’t be. To alleviate future headaches, here’s a foundation on which you should build your insurance program, and some basic rules for getting through the claims process.
There are three critical elements in any insurance-claim process. The first is preparation—the foundation. The second is documentation, followed by cooperation. Let’s look at how this applies to the insurance for your self-storage facility.
To build your insurance foundation, buy the right type of insurance in an adequate amount. As a facility owner, you face substantial risks to your investment in the form of:
- Direct physical loss to your business property
- Resulting loss to your income
- Potential liability for injury to others
- Damage to other peoples’ property
These risks are typically insured through a single policy designed to cover property and liability exposures. You may also need some additional coverage not provided in a “standard package” policy. Here’s a breakdown of insurance coverages to consider.
Will you rebuild or repair after a loss to your buildings or business personal property? Most property policies sold today will cover this if you actually do replace, repair or rebuild. But your insurance limits need to be adequate to pay for that replacement. This means you need to keep your property insurance in line with the cost to rebuild or replace. Construction costs generally go up over time. Many self-storage owners add new buildings to their facilities to satisfy increased demand. These changes need to be reflected in changes to your property insurance limits.
For a property or income loss, your insurance is a contract of indemnity. This means that after a claim is resolved, you should be restored to the same financial condition you were in before the insured loss occurred. If you choose not to rebuild or replace, your property loss will be valued at actual cash value or the depreciated value of the property prior to the loss. If you repair or replace, most policies will pay for the current cost to rebuild, even if it exceeds the original building cost, assuming you have purchased adequate insurance. Many policies will even pay for additional expenses to bring the damaged property up to code. This is a particularly important coverage for owners of older self-storage properties to consider and discuss with their insurance representatives when purchasing insurance.
Some properties may be subject to hazards that are typically excluded from standard property-insurance policies. Two very common hazards typically excluded are flood and earthquake. If your property is in an area particularly susceptible to damage from these hazards, you may need to purchase separate insurance.
Loss of Income
Direct loss to your business property will often result in a loss to your rental income as well, which may continue beyond the period necessary to repair or rebuild. It will take time to lease up the restored property. Some insurance policies will continue to pay for loss of rental income after property restoration until units are rented, some will not.
When considering your insurance needs, look at your current rental income, the time period necessary to restore your property to rentable conditions following a severe loss, and the time needed to re-rent the units to the occupancy level prior to the loss. Be sure your limit is adequate to cover all the income you could lose.
How much do you need? This is a good question with no easy answer. This is not a good place to cut back on limits to save premium dollars. Rates and premiums for liability insurance don’t increase dollar for dollar as they often do in property insurance. For example, $1,000,000 of liability insurance will generally not cost double what you would pay for $500,000. Get quotes for several levels and purchase enough to cover what you believe to be the maximum damage in which you might be liable.