Should Self Storage Operators Require Tenant Insurance?

August 23, 2022

Requiring Tenant Insurance with Graphic of Signed Paper
5 min

Well, I’m not paying for it!

The blame game can start up pretty fast when something goes wrong at a self-storage facility. To counter this, many operators make every tenant buy insurance or a tenant protection plan.

But should you do the same? We’ll explore the benefits and drawbacks of requiring tenant protection at your facility here!

Liability can keep self storage operators up at night. If there’s a fire at your facility, it’s already a disaster - then if your rebuild gets interrupted by a dozen lawsuits claiming the fire was your fault, what should you do?

In general, the operator can’t be held responsible for stolen or damaged items held at their facility. Your rental agreement should make that clear to your tenants. But, that can’t stop them from suing you anyways, so many operators insist that all tenants be protected by insurance or protection plans before they rent.


Self Storage Insurance Options

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We’ve discussed the difference between insurance and tenant protection plans in depth before, but they work almost exactly the same.

The tenant pays a small monthly fee in exchange for a guarantee that, if something bad happens, someone will compensate them for whatever items they’ve lost. 

This is good for the tenant because they know that they won’t suffer a serious loss in case of theft or disaster.

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It’s good for you (the operator) because it gives the tenant an answer in face of a difficult situation that isn’t “blame the facility.”

Almost all of the largest self storage companies require their tenants to have insurance.

Tenant insurance must be purchased directly from a licensed insurance agent or agency. Insurance is subject to a host of legal regulations, including guidance on rates and commissions. 

Tenant protection plans are an agreement between you and the tenant that you will take on some liability for the stuff stored on your property, up to a point. Typically, you will then have insurance (with a licensed agency) that will compensate you for compensating the tenant for loss.

Protection plans go through you. You’ll set the rates, you’ll pay out the claims, and you’ll deal with the insurance company. This can be a source of income - in some cases, it can be significant, as you set the price. On the other hand, operating tenant protection plans can cost you time and attention. 

While you can’t sell insurance directly to tenants, you can partner with an insurance agency and organize group discounts or facilitate an easy insurance purchase for your tenants. This won’t make you as much money, but you won’t be the middleman - saving yourself time is always valuable!

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Are Self Storage Operators Liable for Damages?

Self storage operators are usually not liable for damages to tenants' property. Of course, the rules vary from state to state, so consult your state self storage association; they can tell you how liability laws work in your state.

In general, though, you’re not going to be held legally liable for damage to your tenants’ property - but that won’t stop them from trying.

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If thieves break into a self storage unit and steal everything, or if a fire destroys most of a tenant’s possessions, the tenant is going to be upset. They’re going to be stressed. They’re going to want someone to take care of the problem.

If they have insurance or a tenant protection plan, you can offer them something useful and concrete. So, while you don’t need to offer self storage insurance or a tenant protection plan, many operators find that doing so is worthwhile.

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Automating Your Self Storage Insurance with Software

Offering tenant protection plans or insurance is even easier if you can integrate the process with your PMS. If your property management software has the capability, you can simply make insurance another step in the rental process. 

If you want to mandate self storage insurance, some operators prefer to simply lump the extra fee in with the rent. The tenant will be covered and you may not have to make the case for tenant protection plans. This strategy works well if your rates are already competitive and you don’t lose many customers to cheaper competition.

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Another option is to require tenants have coverage from someone else. Renters insurance, homeowners insurance, or other coverage could be a good substitute for a tenant protection plan - at least you would know your tenant will have someone to go to for help when something goes wrong.

With your self storage software, you’ll be able to upload and keep track of proof of insurance. This serves two purposes; you’ll know all your tenants are covered, and you’ll have proof that they told you they were covered if they try to argue otherwise.

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Summary: Should I Make My Tenants Buy Self Storage Insurance?

The right answer will depend on the specifics of your self storage facility. Before you decide, consider the following factors:

  1. Do your tenants need tenant protection plans or self storage insurance?
    1. If you rarely experience adverse events at your facility - no damage to stored goods, no break-ins, etc. - then you may be fine without insisting your tenants get more coverage
  2. Are your tenants price-sensitive?
    1. Bare-bones self storage operations are going to have a hard time convincing tenants to pay additional fees for a tenant protection plan. Premium facilities will have an easier time, as tenants are already accustomed to paying more for additional benefits. Know your customer, and try to estimate their willingness to pay for insurance before you make it a requirement.
  3. Is your facility in demand or struggling for new tenants?
    1. Like everywhere else in the economy, supply and demand will dictate the relationship between you and the customer. If new tenants are beating down the door, then you can afford to send a few existing tenants away if they get upset at the new requirements! On the other hand, if you’re struggling to find enough renters to fill your facility, you’ll have to give your tenants what they want.

Every operator should offer protection plans - they’re a good way to make some money, and they protect you as well as your tenant in case something goes wrong. 

You should only force tenants to purchase protection if you’re certain they need it and you can afford to ruffle a few feathers.

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Learn more ways to improve your self storage facility with these:

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