Running a local business is different. Your tenants are your neighbors–successes like your local team winning the playoffs have you cheering alongside your customers, while natural disasters hit you all just as hard. Even in situations where you’re not directly affected, you care about your town and its people.
You want to take good care of your tenants, but you can’t reimburse them for every item that gets damaged in a storm or chewed up by bugs another tenant brought. That’s where insurance comes in, or at least that’s where it should come in. Homeowners insurance may cover storage units... but there’s a limit to that coverage.
There’s a better way to protect your tenants from disaster, theft, and loss. Tenant insurance plans offer protection to people you want to look out for - and can help you turn a profit, too.
Let’s learn how tenant insurance plans can help you protect both you and your tenants.
Insurance plans are one of the best ancillary products you can provide! They drive your profits, ensure peace of mind, and provide security. It also puts responsibility in your customers’ hands instead of yours.
Need a quick look? Here’s a simplified version:
Before we get started, it’s important to note that what we’re delving into here is Tenant Insurance, which isn’t the same as a Tenant Protection Plan. Both Tenant Insurance and Tenant Protection Plans cover your tenants’ belongings, but they work differently.
For a quick look, we’re using the legal terms “Tenant Insurance” and “Tenant Protection Plans” as defined by legal expert Scott Zucker–you can check out his explanation of the two terms here.
Tenant Insurance usually requires you to be licensed to sell it, and some states don’t allow you to sell it at all. Tenants enter into an agreement with a third party insurance provider, though you may be part of that exchange under a “limited lines” statutory approval process. Operators can receive a commission from the insurance company for “selling” their insurance, but tenants file claims directly to the insurance provider in the event of damage. You have no say over what’s covered by the insurance–that’s up to the third party provider. You have less control, but you also don’t have to handle claims.
Tenant Protection Plans work differently. A tenant enters into a contract with a facility owner: for additional rent, the owner will assume liability for damages to property stored at the facility up to a certain amount, but the owner doesn’t assume any “care, custody, or control over the tenant’s property.” In other words, you’re agreeing to handle damages in certain events, but not to take care of a tenant’s stuff.
Which damages? That’s up to you. What you cover and for how much is defined in the legal agreement you enter into with a tenant, and should be as clear as possible.
There are advantages to each type of coverage, but today we’ll go further into what Tenant Insurance can offer you and your renters.
So, what exactly does Tenant Insurance do for your business?
Owners may be hesitant to implement insurance plans because they think it could drive some customers away due to cost. However, most storage facilities should consider offering or requiring insurance.
Just like other safeguard features such as security cameras, insurance will protect your customers’ valuables. It’s a value-added product.
Often, customers don’t understand the risks of using self storage and mistakenly believe that the owner or managers are responsible for their belongings. At the end of the day, you’re providing storage, not security. But that doesn’t mean a tenant won’t expect that their belongings have some measure of safety. That’s where insurance comes in.
Many providers of self storage insurance provide coverage with no deductible, and a group of professionals that can handle claims quickly–something you don’t have to handle.
Insurance is also an excellent product for the tenant because they can get good coverage at a small cost. For example, an $8 to $10 monthly fee can get your customers up to $2,000 of coverage. It’s a small price to pay for a sense of security and offers a means to restore damages if something goes wrong.
Providing insurance options for tenants will increase your profits. Insurance providers pass along a portion of the revenue to your property for signing up tenants. If that sounds like your referral program, but for insurance, it’s pretty close.
You are running a referral program, right?
Here’s how the numbers add up: $9 per month insurance will typically net you $4 a month. If you are selling a $40 unit, that’s a 10% increase in profit! And the money you earn on the sale is yours–because even when a claim is filed, it’s the insurance company, not you, who hands over the cash.
Let’s think bigger. A 450-unit facility requiring insurance has a potential incoming profit of $1,800. A facility with 1000 units stands to gain an extra $4000 a month. It’s not as much as your units themselves net you a month, maybe–but it’s extra money that gives you the financial mobility to make other improvements to your facility.
These calculations are for the base rate of insurance offered. You can also provide increased insurance coverage for a higher fee. Most customers will not choose to purchase the increased coverage, but having the option for tenants who are concerned about damage is a way to serve their needs.
Insurance plans can reduce business risk. If something does go wrong, you'll have an answer.
Helping your customer understand their risks will reduce yours. Even if your lease states that the facility is not responsible for customer property, you can imagine a situation where an upset customer tries to cast blame on management in the event of damage. Diffusing those situations is difficult, and can quickly devolve into finger-pointing.
Using a 3rd party to handle claims will help prevent customers from filing complaints, posting negative remarks on social media, and bringing lawsuits against your property. Because when someone asks “who’s responsible for covering my damaged couch,” the answer is clear: the insurance company (assuming nobody’s been negligent, of course).
Sounds like a good deal, right? So should you run out and partner with an insurance agency today, ready to tack an extra fee onto every sale you make? Well…there’s something you’ll want to know before you do that.
It’s legal to require tenants to have insurance when they rent from you.
It’s not legal to require them to buy the one you’re offering.
Mandatory insurance does not mean the borrower must buy insurance from you. It just means they need coverage to rent with you. They can purchase insurance through you, or they can show that they have coverage from a rental or homeowners policy. Even though you can’t require your own insurance, there are advantages to requiring insurance across the board.
You’re playing a numbers game with this strategy. On the one hand, tenants may already have insurance. Of the ones who don’t, some may prefer to get a policy that’s different from the one you offer. But the one you’re offering is right in front of them, and convenience is compelling.
Be open and upfront about the insurance from the beginning so that the customer isn’t surprised while signing the lease. You don’t want to give them the impression that you’re saddling them with hidden fees, especially if you draw in customers with promises of transparency and honest business practices. If customers have proof of homeowners insurance, though, they should be aware of limitations and high deductibles.
According to Hippo, if they end up making a claim through their homeowner's insurance, their rate could increase up to as much as 20%, and claims can stay on their record for years, counting against them as more claims are filed in the future.
In an upselling situation, you aren’t requiring insurance, but you offer it as an option. You still have insurance ready to offer to a tenant, but not everyone in your facility will be insured.
This option requires that your managers use sales techniques to swing the sale of the insurance and, because it is optional, many people will not buy your insurance.
The upselling route can be a hard sell. Potential tenants want to be assured their belongings are safe at your property, and having insurance as an option rather than a requirement can emphasize the reality of the risk. If you’re providing optional insurance, make sure to show how it benefits the customer.
And just because you suggested insurance doesn’t mean that tenants who were offered it will understand that you are not liable for damage. Theft or damage that would have been covered means nothing to a tenant looking for someone to cover their losses.
If you’re a specialty storage property–if you offer boat or RV storage, for example–you can find insurance providers that will cater to your needs.
Tenants who store highly valuable items are willing to pay a higher insurance premium for additional protection. If you specialize in wine storage, partnering with an insurance provider who specializes in covering wine better aligns coverage with your service. In this case, specialty insurance better serves your tenants and increases your bottom line.
Having tenant insurance available at your facility is a valuable safeguard that reduces your risk of litigation and complaints from upset tenants. It allows you to focus on your core business, increase the profits at your facility, and give your tenants more peace of mind.
Interested in learning more about legal matters in Self Storage? Check out these articles:
