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How Should You Insure Your Storage Unit Business?

1 October 2015 by David Diaz

If you're taking the plunge into the world of real estate investing by purchasing a self-storage facility, you may have many questions about your potential liability—both for accidents or injuries sustained on your property and for damage to your tenants' items contained within each storage unit.

What types of insurance coverage are required, and which can offer you the greatest protection? Is it worthwhile to purchase more insurance than you likely need simply to ensure your business isn't hit with a lawsuit? Read on to learn more about insuring your self-storage facility.

How can you protect yourself against potential liability?

You need insurance coverage to protect you against potential claims brought by customers who are injured on your property. Slip-and-fall lawsuits are a lucrative business for many attorneys, and without proper insurance coverage, you could find yourself paying thousands (or even tens of thousands) to defend against what may seem like a fairly minor injury. 

This coverage is even more important in the self-storage context, as many of your paying customers will be loading and unloading heavy furniture, increasing their odds of injury. (Unfortunately, even if an injury was solely due to the customer's own negligence, the customer may opt to sue you.) Therefore, you'll want to purchase liability coverage with high limits to help avoid a judgment or settlement from your business's own pocket.

You may also want to investigate an insurance policy that will help provide coverage for any legal expenses incurred in defending against a personal injury lawsuit, or even help you pay your business's regular bills while using the rest of your available cash to defend a lawsuit. An umbrella insurance policy can often accomplish this by supplementing your business's liability and property damage coverage, extending this protection well beyond the coverage limits offered by the underlying policies. 

Do you need to insure the belongings of each unit?

While you may opt to insure the contents of each storage unit against fire, flood, theft, or other potential losses, this usually isn't necessary. The majority of homeowners insurance policies will provide some coverage for items kept off-site in a storage unit. In addition, most standard storage unit leases clearly state that the business owner is responsible only for the storage facility itself and any common areas—not the contents of each rented unit. To provide the maximum protection (with minimum hassle), you'll want to again remind your tenants of their insurance rights and responsibilities upon their signing of a rental unit lease. 

What other liability precautions should you take?

Unless you're operating a very small storage facility or one in a well-monitored part of town, you'll likely need to hire a security guard or invest in surveillance cameras to prevent thefts and vandalism, both to the property as a whole and to any individual units. Doing so can help you reduce both your insurance costs and the likelihood that you'll be on the receiving end of a claim.

You'll also want to ensure that none of your tenants are storing any items that could potentially pose a danger to others' belongings or the unit itself. Flammable or combustible items (like lighter fluid, butane, gasoline, and others) are particularly problematic when kept in confined, poorly-ventilated areas. You'll also want to prevent your tenants from storing food or plants in their rental units, as this could lead to a stubborn pest infestation.

Language prohibiting the storage of these items should be clearly indicated in your rental agreement, and you may opt to invoke steep penalties for any violation (up to and including immediate eviction). For more insight, talk to companies like Allsafe & Storaway Self Storage.

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