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Did you know that usually a landlord's homeowners insurance doesn't cover a tenant's belongings in case of emergency? That if a tornado were to hit, or a fire were to burn the house down, or an upstairs neighbor's pipe burst, it's unlikely that a landlord's insurance would cover your stuff?*

It seems like many tenants don't know how to wade through the terms of an insurance policy, afraid of making a mistake. But when it comes to a renters insurance policy, the biggest mistake a tenant can make is not one to get one at all. Today, I'm putting a bunch of information in one place, hoping that if I break things down, all of you readers out there, who don't have renters insurance, might get a little more information.

Cost: Cost is one of the big concerns for tenants, but very few tenants that I speak to know the actual cost of purchasing a renter's insurance policy. 

• According to the Insurance Information Institute, Wisconsin has one of the lowest nationwide renter's insurance premium averages, at about $130 per year. (Only South Dakota is lower). That comes out to about $10.83 per month.
• Most companies add a small premium to divide the annual payment into monthly installments. This increased cost is about $1-6 per month beyond the premium itself. Most renters see an average monthly cost of around $12/month.
• Here is a useful cost comparison chart of 10 different companies that offer renter's insurance: http://renters-insurance-review.toptenreviews.com/. 

How does renters insurance work? 

According to Investopedia, renters insurance is "a form of property insurance that provides coverage for a policy holder's belongings and liability within a rental property...The policy protects against losses to the tenant's personal property within the rented property. In addition, a renter's insurance policy protects against losses resulting from liability claims, such as injuries occurring on the premises that are not due to a structural problem with the property (in this case, the owner's - not renter's - policy would apply)."

To be protected, tenants pay a premium to the insurance company. If the tenant must file a claim saying that the insurance company needs to compensate the tenant for liability or damaged belongings, the tenant pays the amount of the deductible (usually $500) in replacement/liability costs, and the insurance company pays the rest of the costs, unless the amount turns out to be more than the company's coverage limit.

Is it worth it to you?

Look around your home right now. Imagine replacing every single thing that you use, that you touch, that you sleep on, that you watch... Imagine how much money and time it took you to accumulate what's in your home right now. Did you save for it? Did you have to make a payment plan? Are you still paying off your credit card?

And now imagine all your neighbors' belongings - what happens if your kiddo flushes a towel while you aren't looking, and the toilet floods, damaging much of your neighbor's stuff? Would it be easy to cover the costs of that? What about medical bills if the flooding caused someone to slip? All of this adds up unexpectedly fast.

Things that insurance companies consider when deciding how much to charge you for a premium:

• Your financial stability and credit history.
• Your claims history: how much you've asked insurance to pay out in the past.
• Coverage amounts: how much are you saying your personal property is worth? $15,000 worth of personal property will require lower premiums than $100,000 worth of personal property.
• Geographical area: a high-crime city neighborhood will have more expensive premiums than a low-crime, low-natural-disaster rural area.
• Deductible: if you are requesting a low deductible, then your premium is likely to be more expensive.
• Multiple types of insurance with the same company: If you already have auto insurance with a company, then they are likely to give you a discount if you sign up for renters insurance.
• Type of home: single family home vs. apartment vs. mobile home. All will have different insurance costs.

Things to consider when asking about coverage:

• Personal property vs. business equipment. Not all policies cover business equipment (especially computers), so ask if you need work property to be covered under your policy.
• Replacement cost vs. Actual cost. When your personal property is covered, the company will either pay for replacement cost of the property, or actual cost of the property. Replacement cost is how much it would cost, right this second, to buy a new version of the property (for example: replacement cost means that payment for an unusable 15 year old sofa would be whatever it would cost to buy a new sofa). Actual cost is the current going rate for an item of that age (for example: actual cost means that payment for an unusable 15 year old sofa would be however much you'd get for that sofa, right now, on something like Ebay, which probably wouldn't get you very far if you were trying to buy a new sofa).
• A place to live while your home is repaired. If a rental unit is damaged for a reason that's covered under the policy, most policies give you money for hotels, food, or other places to live while your home is being repaired. But the coverage is really different between companies, so make sure to ask. 
• Perils. Most companies don't cover damage from floods in their basic policy (internal floods, like from a pipe bursting is often covered, but not when the whole area is flooded from a big storm). Most don't cover earthquakes, either, but usually you can get protection for those situations for a little bit extra. Ask your neighbors if floods are a big issue in your area.
• Roommates. Usually spouses and family members who reside with you are covered, but all bets are off for roommates. If you have roommates, you might not be covered the way you expect. Make sure to ask!
• Pets. Some breeds of pets aren't covered by insurance companies - which means that the liability if something goes wrong is all on you.
• Proof of insurance. Many landlords ask to be listed on the policy so that they'll know if tenants are covered, but there's an easier way: tenants can request that the insurance company email proof of coverage to the landlord, and most companies happily will.

What does this all look like?

A helpful comparison chart is here, but to find out about coverage in Wisconsin, I called a number of insurance companies today, to see what they say about their policies. This is what they said! Please keep in mind that we don't have plans to update this regularly, that you'll get specific information based on your own personal circumstances, and clearly there are many more insurance companies out there. Hopefully, this will be helpful as you look at the choices that are available to you.

Other resources:

• "8 QUESTIONS YOU MUST ASK BEFORE BUYING RENTERS’ INSURANCE" from Brick Underground.
• "Should You Buy Renters Insurance?" from US News and World Report.
• "6 Good Reasons To Get Renter's Insurance" from Investopedia.
• "7 Tips to Understanding and Buying Renter's Insurance" from Hanover Fire & Casualty Insurance Company.

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* One of the few times that landlords are on the hook for the stuff inside a house is when the landlord themselves are negligent - when they failed to prevent a problem.