Are Tenant Protection Plans and Self Storage Insurance the Same?

August 2, 2022

Tenant Protection Plan or Insurance
5 min

What is a protection plan?

I would have answered “it’s insurance!” back when I was a fool.

Actually, protection plans and insurance function very similarly, especially for the tenant whose stuff is being protected. They’re exchanging money for protection from risk; a small monthly fee to ensure that if something catastrophic happens, they won’t be footing the bill.

But for self storage operators, the two are not interchangeable.

The biggest difference between protection plans and insurance is in the licensing. Self storage insurance is a highly regulated industry, and protection plans are a way for self storage operators to offer similar protection without having to become accredited.

This distinction affects the programs you can (and should) offer to your tenants. We’ll go over the differences here, as well as how you can best protect your customers while making a profit!


What Are the Differences Between Protection Plans and Insurance?

Protection plans and insurance differ in how many buffers there are between the damage and the liability. With a tenant protection plan, you as the operator agree to assume liability for what happens on the property (to an extent, and with lots of conditions, of course). You would then purchase protection from an actual insurer - they’re insuring you and your business, not the tenant.

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When a tenant purchases an insurance plan or brings their homeowner’s insurance to cover their goods, you aren’t involved (unless you happen to be an insurance agent). In most states, you won’t be able to sell insurance to your tenants - a protection plan will be your only option. You could potentially require tenants to buy their own insurance plan, but not everywhere allows that either. Consult your local self storage association for legal advice on the subject.

In general, self storage facilities only offer tenant protection plans, not insurance!

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How Do Self Storage Tenant Protection Plans Work?

When crafting your self storage rental agreement, you should inform your tenants that you aren’t responsible for keeping their possessions safe. While every operator wants to provide secure storage, you aren’t on the hook for natural disasters, theft, or other occurrences that could damage the tenant’s possessions.

No matter how clear you are, though, your tenants may still try to hold you liable for anything that happens to their things. In the event of a fire or break-in, your tenant will be stressed, scared, and angry; even though you’re not legally responsible for what happened, they’re still going to look to you to fix it.

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If you offer a tenant protection plan with every rental, your tenants have a way to get ahead of the curve - and if they opt out (especially if you make them sign something saying they’ve opted out), then you have a strong defense when someone tries to blame you for damage or loss.

If your customer feels you have treated them fairly, they are more likely to become repeat customers, recommend your business to friends, and leave good reviews. This is part of creating a good customer experience and is the best way to market your business.

Offering a tenant protection plan, and getting your tenants to use it, alleviates the worst experiences your customers might face doing business with you.

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Self Storage Tenant Protection Plans as Profit

Tenant protection plans give you a way to help your tenants if disaster strikes; they also are a way to increase your profit margin per tenant.

Since you’re not an insurance agent, you aren’t limited by the laws that govern insurance compensation and rates. That means you can charge whatever you’d like - as long as you can get your tenants to pay, of course.

This works similarly to setting the price for your storage units. You need to find the point where you and your tenants both feel you’re getting value for the transaction. As above, creating a good customer experience is vital to having a successful business. Making $50 off a tenant who thinks you gave them a bad deal is much worse than making $20 off a happy tenant because that happy tenant will give you that $20 extra a month for a long time!

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You should also consider offering multiple different plans for your tenants. Someone parking a six-figure RV at your facility will want a much better protection plan than someone leaving Grandma’s old furniture in the space until they can find a place for it.

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Should Self Storage Operators Mandate Buying a Protection Plan?

Some operators try to get every last tenant to sign up for a tenant protection plan. This can work, though the different states may require you to go about it differently. Basically, you tell your tenants they must purchase a tenant protection plan or you won’t rent to them. 

Tenant protection plans can save you a lot of headaches, especially if your facility encounters theft or damage frequently. If you’ve set the price point correctly, it’ll also bring in extra cash. So why wouldn’t you mandate that every renter sign up for your tenant protection plan?

If you think your tenant protection plan is driving tenants away, it may not be worth the extra money it’ll make you. Not only do tenants have to sign additional paperwork (annoying, but not often a dealbreaker), it changes the price point of renting with your facility. 

If you offer budget storage space to tenants who are seeking the lowest price, adding a mandatory tenant protection plan could make them choose a different business. So, the benefits of a tenant protection plan will fluctuate with your occupancy rates. If you have a nice, full facility, adding a tenant protection plan is a good way to make extra money and save your future self a headache.

If you’re struggling to lease-up, consider offering, but not mandating, a tenant protection plan with favorable terms to make your facility more attractive to potential renters!

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