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Self-Storage Insurance Facility Value and Replacement-Cost Calculations


By Randy Tipton

In the wake of the recession, self-storage owners nationwide are concerned about the market value of their properties. While some haven’t see a significant drop in value and others are already seeing improvement, there certainly is a trend in lower values when facilities are appraised.

Because of this, many facility owners feel their property limits in respect to the replacement values on their insurance policy should be reduced. This creates a dilemma as to how self-storage owners should provide accurate replacement-cost values to their insurance company while market values are declining.

Logically, it doesn’t make sense that the cost to rebuild has increased this year given the state of the economy, especially with the reduction in construction costs and decline in land values. What many owners don’t consider, however, are the fixed costs of supplies that are not decreasing. In fact, steel and cement prices have increased.

Many insurance companies have their own internal appraisal systems, whereas others rely on brokers and clients to use a reputable appraisal service and then check the increases against what they’re seeing in the market. Most insurance companies review properties annually and adjust their building values accordingly. Plus, most will insist self-storage owners carry full replacement-cost valuation on their insurance policies.

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It’s important to know your insurance underwriter is looking at the cost to rebuild your buildings as they stand today; it does not pay consideration to the market value. You’ll also be required to insure to full replacement cost for all buildings at your site. Self-storage owners often will declare, “There’s no way my entire facility will suffer a loss. I don’t want to insure the whole property!” 

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