Tenant Insurance Is An Important Risk Management Tool

Hurricanes. Hail. Floods. Wildfire. To date, 2017 has been an active year for catastrophic events, and thousands of property owners have been left to deal with the destructive aftermath. Most self-storage business owners know that it is important to purchase insurance coverage to deal with property and liability exposures, but there is another type of insurance that costs the facility nothing and delivers important benefits: tenant insurance.

Offering affordable, short-term insurance to tenants is a value-added service a facility can provide that requires minimal administrative effort on the operator’s part. Tenants need to insure their own stored goods, and tenant insurance programs provide a low-cost way for them to protect their items against perils such as fire, burglary, lightning, windstorm, hail, water damage, smoke, earthquake, and explosion. Flood coverage is a common exclusion on tenant insurance policies.

Tenant Insurance is a Win-Win

Purchasing tenant insurance helps customers avoid making claims against their homeowner insurance policies in the event of damage to or loss of their stored items. Due to the history of catastrophic weather events over the past several years, insurance claims have trended upward in both frequency and severity. As a result, insurance carriers may be particularly sensitive to claims, even for smaller losses. With the real threat of homeowner policy nonrenewal or a potential increase in premium as a result of filing a claim, it is an added benefit for tenants to have separate insurance coverage for their stored belongings. In addition, homeowner policies may include high deductibles and limit and coverage limitations that could impact the result of a claim settlement related to a storage unit loss. Most tenant insurance programs offer a wide range of coverage limits and no deductibles.

Self-storage business owners also benefit from tenant insurance as it provides an indirect protection against claims and lawsuits in the event a customer experiences a loss. Tenants who have purchased tenant insurance typically will go directly to the insurance provider to file claims rather than attempt to seek restitution from the facility.

Requiring Evidence of Insurance

There is a growing trend in the self-storage industry toward requiring all tenants to provide evidence of insurance as a condition of the lease. Customers are given the option of providing evidence of insurance, such as through a homeowner or renter policy, or purchasing a specialty property insurance policy from the facility. It is highly recommended that operators utilize carriers rated “A” by A.M. Best that offer policies where the forms and rates are issued on admitted paper filed and approved by the state. Business owners should always consult their attorneys before making changes to their rental contracts.

Requiring evidence of insurance may yield additional benefits in situations such as catastrophic weather events or fires started as a result of a tenant’s negligence. The facility’s reputation may be enhanced because all insured tenants will have the ability to file a claim with their existing insurance carrier thereby mitigating the exposure to the facility operation.

It is always recommended that facility operators speak with their attorneys and insurance agents and/or insurance providers to ensure that they fully understand applicable state laws concerning tenant insurance including licensing and training requirements and any proposed changes to the rental contact.

Mike Schofield

President and CEO

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