What Types of Insurance Does a Self-Storage Business Need?

Many people need extra storage from time to time. Whether moving, downsizing, or storing business equipment, customers rent storage units as a secure way to keep their items. As a result, self-storage businesses are continually in demand and profitable. And, profits are best protected when the business is suitably insured.

Related: Guide to starting a self-storage business

What Are Some Risks for a Self-Storage Business?

Self-storage businesses have risks that expose them to lawsuits and financial losses. For example, self-storage businesses are exposed to the following risks:

• Sudden inability to lease units
• Harm or loss to a customer’s belongings
• Employee injury
• Fire damage
• Robbery

Sudden Inability to Lease Units

A self-storage business generates income from rent. So, a loss that renders the units un-leasable means the business cannot produce revenue. For example, the self-storage facility cannot lease units destroyed by a fire, putting the business at risk of lost income. Additionally, self-storage facilities with climate-controlled units risk lost income during repairs on inoperable or malfunctioning units.

A majority of tenants choose storage facilities based on the closeness to their business or home. So, location is essential. And although relocation is possible following a loss, it may cause the facility to lose tenants.

Harm or Loss to a Customer’s Belongings

Tenants are responsible for insuring their items stored inside the units, however, the business can be held liable for physical damage claims if the facility is found negligent. For example, a self-storage business faces potential lawsuits if the customer’s items are damaged or stolen and the facility has failed to provide security. These claims can be avoided by offering customer storage insurance coverage to tenants.

If a client stops paying the rent or abandons their items, the business has a possession dilemma. Indeed, a savvy business would want to clear out the unit so a paying tenant can occupy the space, but issues arise when dealing with the proper disposal of existing items. Lawsuits happen if the self-storage facility incorrectly assumes possession of the items and sells or disposes of them.

Further, the business is liable for customer injuries that occur on-site. Slips, trips, and falls are more common injury claims. Still, self-storage facilities have additional injury risks from hazards such as caved-in roofs or pests.

Employee Injury

Employees will face several injury risks at a self-storage facility. Mainly, employees become injured from slips, falls, and strains from lifting heavy equipment. In addition, the chances of injuries increase if employees are required to empty abandoned units. For example, items may be stacked unevenly and fall inside the unit, causing concussion or crushed limbs. Additionally, clearing out bulky, heavy, or awkwardly shaped items can increase the risk of muscle strain or back injury.

Safety is another physical concern for employees. For example, robberies and disgruntled tenants are a hazard for self-storage businesses and put employees at risk of altercations that may cause bodily harm. 

Fire Damage

Fire is a significant hazard for self-storage facilities because a damaging fire can impair the business’s ability to make money. Common fire causes include faulty wiring, malfunctioning equipment, smoking, and explosive or flammable items. Even more so, fires at a self-storage facility are likely to spread quickly since many flammable objects are stored on-site. In addition, a heavy fire load suggests that a fire will spread quickly and is more challenging to put out.

Although fire and smoke damage is the primary concern for property damage, self-storage facilities have other hazards that damage property. For example, winds, heavy snow, and falling trees cause significant damage.

Robbery

Robbery is a concern for self-storage businesses because they commonly make cash transactions, and cash is commonly a target of theft. A self-storage facility has a considerable amount of cash on-site at any given time, putting the business at an increased risk of robbery. Aside from robberies, employee dishonesty is another concern. Employees who make the cash transactions or have access to the safe may be tempted to steal the business’s money.

What Types of Insurance Policies Should a Self-Storage Business Consider?

Because self-storage businesses have several layers of risk, it becomes essential to have various types of insurance to cover each risk. Some of the insurance policies that a self-storage business should consider include the following coverage options:

• Business interruption insurance
• General liability insurance
• Workers’ compensation insurance
• Property insurance 
• Crime insurance 

Business Interruption Insurance

Business interruption insurance covers expenses and regular income when the business closes unexpectedly. Following a loss, the self-storage facility is still responsible for paying the monthly bills, even with no rental income. However, business interruption insurance helps prevent gaps in the normal flow of income if a loss occurs.  

Generally, coverage lasts a total of 30 days. But, for an additional cost, insurance companies will extend the length of coverage. Some of the benefits of a business interruption policy include

• Payment on regular bills and loans
• Coverage for employee wages
• Coverage for lost income
• Compensation for temporary relocation costs

General Liability Insurance

Bodily injury or property damage that occurs on-site or due to the business’s operations is covered under a general liability policy. For example, this policy covers claims for customers who fall and injure themselves on the property. Additionally, this liability coverage protects the business if an employee damages a customer’s property. For instance, if the self-service facility offers moving assistance and an employee drops and breaks an item during this service, the policy would cover the claim.

It is important to note that the business is not responsible for a customer’s items inside the storage unit. So, items lost to hazards (such as a fire, theft, or pest damage) are the customer’s responsibility to insure unless the loss occurred due to the facility’s negligence. For example, if the self-storage facility fails to secure units properly and theft occurs, it could be liable for the claim.

Additionally, this line of business needs sale and disposal legal liability (a specific self-storage liability policy that protects the business from issues involving the transfer of ownership for items). If tenants fail to pay rent, their belongings will transfer into the business’s control. Laws dictate steps that a self-storage business must take, like sending notifications and attempting to get payment, before selling or disposing of the tenant’s items. A failure to do so could result in an expensive lawsuit.

Workers’ Compensation Insurance

A workers’ compensation insurance policy covers employee injuries. For instance, if an employee breaks a bone falling on a slippery walkway, they may accrue expensive medical bills and be unable to work for a time. Fortunately, workers’ compensation protects employees by covering their expenses and lost income following a loss, and it also protects the business from potential lawsuits.

A workers’ compensation policy includes several coverage benefits, such as the following:

• Compensation for lost income
• Payment of medical bills
• Rehabilitation care
• Disability income
• Funeral expenses

Property Insurance

A property insurance policy covers structures and business-owned items for physical damage or loss claims. Some of the hazards that are commonly covered include

• Fire
• Wind
• Hail
• Theft
• Vandalism
• Water damage from leaking pipes

Property insurance covers structures and business-owned items, minus the deductible, up to an agreed policy amount. Often, a property insurance policy has more than one deductible. For example, the policy may have a separate deductible for wind or hail damage.

Sale and Disposal Liability Insurance

Sale-and-disposal legal liability insurance is a type of coverage for self-storage operators which provides protection against lawsuits claiming loss or damage of stored goods.  Nearly every state has specific statutes to govern the process when a tenant does not pay their storage fee. 

Even when handled correctly, it’s common for a tenant to file a lawsuit against the operator charging negligence in the removal or disposition of stored personal property.

How Much Does Self-Storage Business Insurance Cost?

Self-storage insurance costs vary depending on the business’s specific needs and risk level. Each business has a mixture of factors that affect the coverage amount needed or increase the risk of a loss or accident. For example, some factors that may affect insurance costs include the following:

• The size and condition of structures
• The condition and value of business equipment
• The number of employees on the payroll
• Safety and loss prevention measures
• The average expected rental income
• Any past or current lawsuits or insurance claims

Insurance agents also vary in pricing because each company offers different rates, discounts, and package options. Therefore, the best way to determine insurance costs is by contacting multiple insurance companies for a quote and comparing the available options to find the best fit.