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When to Use Your Home Insurance Deductible
The joys and benefits of having your own home also come with the responsibility to get things replaced when bad stuff happens. About 99% of all home insurance policies have a deductible associated with them. What is the definition of a home insurance deductible, and when is it used?
Home insurance deductible definition
The definition of a home insurance deductible is pretty simple; it's the amount of money the insured is required to pay before the insurance company will pay for the remainder of the claim. In theory, the deductible amount will "complete" the claim.
For example, when a home insurance company sends a claims adjuster to your home, he is assessing the damage that was caused. After speaking with the claims adjuster, your home insurance company estimates how much it thinks it will cost to repair or replace the damage. It then takes that number, subtracts your deductible, and that's the amount you can expect to receive for your claim.
My Roof Claim
Suppose I file a successful claim on my roof and after the claims adjuster examines the roof, my insurance company decides that it will cost $15,000 to replace the damaged portion of my roof. If my deductible is $1,000, my home insurance company will pay $15,000 - $1,000 = $14,000 to me to get my roof replaced.
Average home insurance deductible
The average home insurance deductible varies depending on where you live. The first home I bought was in Fort Worth, Texas. Due to the large number of home insurance claims filed each year in Texas, most Texas insurance policies have started offering deductibles as a percentage of the amount of coverage. I insured my first home for $125,000. The home had a 1% deductible, so the deductible amount was $125,000 x 1% = $1,250. You can imagine how high these deductibles might be if you had a $500,000 or greater home insurance policy!
Because of the variability, it's hard to say what the actual average home insurance deductible nationwide is, but generally most people prefer a deductible between $500 and $1,000. Most states won't require you to have a 1% deductible, so a $500 or $1,000 deductible is reasonable.
Renters insurance deductible
Renters insurance deductibles work the same way as do insurance deductibles on the home. Your renters insurance deductible is supposed to be paid out by you before your insurance company will pay anything to repair or replace your property. Most companies today will write you a check (less your deductible) for the items that need to be repaired or replaced.
If you live in an apartment and your place gets broken into, most companies will ask you to make a list of everything that was taken and the value of each item. Once there is an agreed upon amount (lets say $10,000 for this example), if (for example) your renters insurance deductible is $250, then the insurance company will pay you $9,750 ($10,000 - $250).
Property insurance deductible
Property insurance deductibles are typically for people who own properties they do not live in. I have a rental home in Fort Worth, Texas. Rental homes require different insurance than a standard home insurance policy, which in turn requires a different deductible. A property insurance deductible works exactly the same as a home insurance deductible, it is just referred to as property insurance deductible instead of home insurance deductible.
Is home insurance tax deductible?
The most common question I hear about home insurance in general is whether or not home insurance deductibles are tax deductible. The answer to that question is it depends (don't you just love that answer?). For a majority of the people out there, the answer is probably no. You can't deduct home insurance costs from your taxes.
There are situations, however, when it is okay and even appropriate to deduct your home insurance costs from your taxes. If your home is used for business or rental purposes, the home may qualify for an income tax deduction. When asking the question 'is home insurance tax deductible,' you need to ask yourself if any part of your home is being used for a business you own.
For example, if you work from home, the portion of your insurance that pays for your home office can be a deduction. Also, if you rent out your house, you may be able to qualify for a mortgage insurance tax premium deduction as well. As you can see, the answer to the question is home insurance tax deductible depends on how you are using the property.