Self-Storage Tenant Insurance vs. Protection Plans: Differences, Advantages and Risks

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By Josh Long

Self-storage rental agreements specify that the business operator takes neither care, custody nor control of tenants’ personal property. Instead, tenants assume the risk of damage or loss to their stored goods.

These boilerplate lease terms are crucial to the self-storage industry because they generally insulate operators from liability for customer property that is damaged or lost due to a leaky roof, burglary or other unfortunate circumstance. Tenants face the classic “buyer beware” scenario: They can either purchase tenant insurance from a third-party provider or pray nothing spoils their stuff.

But some self-storage operators have chosen a different path, agreeing to assume risk for tenants’ personal property in exchange for a premium monthly payment. Through their “protection plan,” these operators agree to pay customers for belongings that are lost or damaged, up to a specific dollar amount.

The increasing popularity of protection plans, and some litigation surrounding them, has fueled a vigorous debate over their pros and cons and how they compare to traditional tenant insurance. Operators are curious about the differences between the two programs, the coverages offered and excluded by these products, and which is best for their particular business. This article aims to answer some common questions.

Parties to the Contract

One of the biggest differences between tenant insurance and a protection program is the latter is not insurance, according to Ted Dobbs, an underwriter with Deans & Homer, which has been writing commercial property insurance since 1856. “This is the self-storage owner’s commitment contractually as spelled out in his lease or in a lease addendum that says, ‘Mr. Tenant, if something goes wrong as specified, I’m going to step up to the plate and do the right thing,’” Dobbs says.

Essentially, the operator with a protection plan is offering the customer “a premium quality lease,” added Joseph Torrisi, executive vice president of insurance services with On The Move Insurance Agency, which provides a tenant-protection program. “You’ve got your standard lease where you assume no responsibility for their property, and for a few dollars more, you give them a lease where you are willing to assume limited liability up to the protection-plan limit in the event the roof leaks, the building burns down or your security is breached and the room gets broken into,” Torrisi explained during a seminar at this year’s Inside-Self Storage World Expo in Las Vegas. By contrast, tenant insurance is a contract between the tenant and the insurance carrier.

Damaged Goods: What Next?

Tenant insurance grants a self-storage customer who has suffered a loss the right to file a claim with the insurance provider on the policy, says Blake Johnson, director of underwriting with Ponderosa Insurance Agency LLC. The insurance company handles the claim and determines whether payment should be made under the policy.

“Since we sell tenant-insurance coverage sponsored by a licensed insurance company, we are not involved in deciding if the claim is valid or how much should be paid,” says Kenneth Nitzberg, chairman and CEO of Devon Self Storage Holdings LLC, which offers tenant insurance to its customers.

Self-storage operators who solely offer protection plans are cutting out the third-party insurance carrier. If a tenant’s property is lost or damaged and the loss is covered under the protection plan, the operator is legally responsible for remitting money to the tenant up to the coverage amount specified in the agreement.

Tenant Insurance

A number of self-storage operators say a benefit of tenant insurance is it enables them to focus on their core business. “I’m in the storage business. I’m not in the business of wanting to be handling claims for my tenants,” says Ian Burnstein, co-founder and chief operating officer of Storage Pros Management LLC, which specializes in the acquisition, development, improvement and management of self-storage facilities. “So that’s why I offer a traditional insurance program.”

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