Note: This article was reprinted with permission by the Texas Self Storage Association.
Most people have a love-hate relationship with insurance. They hate paying the monthly premiums but love having the coverage when something happens and they need it.
When it comes down to it, insurance is about managing risk and cash flow. Here are some important coverages self-storage operators should consider when buying insurance, some of which you may not have heard of or considered.
Customer Goods Legal Liability
Most storage operators assume they’re protected from anything related to the goods stored in their facility. This isn’t necessarily true. The customer can always sue, and there are legal costs incurred by the facility owner when this happens. There are also plenty of scenarios in which it can be argued the owner was “negligent,” causing the business to incur a loss.
For example, let’s say you’re doing some work on the property lighting. You’re halfway way done with the project and decide to call it a day. That night, the electricity to the half-finished lights is turned on, sparking a fire that burns a section of the facility and destroys customers’ goods. In this case, operator negligence can be argued, leaving the business exposed. Customer goods legal liability can help limit that risk.
When employee theft occurs, more than 60 percent of the time, the amount stolen exceeds $100,000. Employee-theft coverage applies to money, securities or other property. It can be included in a commercial package or business owner’s policy, but the standard limits for these policies are typically less than $100,000. Buying a standalone policy or increasing your limits would be beneficial.
Natural disasters, such as a hurricane or tornado, can cripple a business. You might feel confident that your property is covered and even have a plan to rebuild; but contractors can be hard to come by in an affected region, making the timeline to rebuild much longer than anticipated.
So, what do you do about the loss of revenue during this time? It’s strongly suggested to carry business-interruption insurance. This can cover lost revenue, rent or lease payments as well as relocation, employee wages, taxes, loans, etc.
Even if you’re not in a flood-prone area, you should still purchase it. Just because you aren’t required to have it doesn’t mean floods can’t occur. Also, if there is flooding in your area, it’s highly likely to be catastrophic. The premium is a minimal cost for a potentially devastating event.
Your self-storage business is at risk online. You might think, “But I’m too small to worry about a cyberattack, right?” Unfortunately, no. In fact, a recent report by Keeper Security, which offers a cybersecurity platform, and research firm The Ponemon Institute revealed:
- More than half of all malware attacks in 2017 were perpetrated against small- or mid-sized businesses.
- The average cyberattack victim spent $879,582 on repairing damage and recovering from the theft of information-technology assets alone. Add in the average operational-disruption cost of $955,429, and the importance of cybersecurity comes into sharp focus.
If you use e-mail to conduct business, you could already be a victim. Whether you’re the founder of a Silicon Valley startup or own a small self-storage facility in Weatherford, Texas, every business owner shares the same risks.
What’s Right for Your Business?
The insurance you purchase shouldn’t really be dependent on the size of your self-storage facility. What’s more important are your business operation (liability) and the assets you hold (property). The standard liability coverages you need are based on your business operation. Facility size should only determine the amount of insurance to purchase, not whether to purchase it. You also need property insurance to cover the buildings and any business-personal property, such as office equipment. If you own a vehicle, you need an auto policy.
You should calculate your limits on these coverages by the cost it would be to replace the items/property in the event of a total disaster. Understand that prices in event of a natural disaster can surge up to 50 percent.
It’s also beneficial to know the structure of your business. If it’s incorporated and you obey all the rules of running it as a corporation, you can probably get away with buying insurance with lower limits. In the event you're sued and lose, only the assets of the corporation might be seized to satisfy a judgment. On the other hand, if you’re a sole proprietorship, you generally need more liability insurance because you can be held personally responsible for judgments against your business. Knowing your operation means accurately assessing how likely it is that you, someone else or someone else's property could be damaged in the routine course of your operation.
A Word on Deductibles
Deductibles are used by insurance companies to adjust the cost of the premium. A larger deductible allows you to self-insure smaller claims and, more than likely, pay a lesser premium. It also allows you to carry insurance limits that might be required by a third party, such as a lender, without overwhelming your cash flow. However, a large deductible may also cripple your cash reserves in the event of a significant loss. Really, it’s a matter of cash on hand vs perceived liability. If you can handle the cost of a high deductible, it may be cost-effective.
At the end of the day, the unexpected is always right around the corner, and it’s difficult to predict the future. Knowing your options and protecting yourself and your business from unforeseen loss and risk is always a smart move.
Michael Seymour is the director of business development for Tomins, a business-insurance solution designed with entrepreneurs in mind. It offers a variety of coverages including business owner policy, general liability, commercial property, workers’ compensation and more. For more information, call 817.500.4140; e-mail email@example.com; visit www.tomins.com.