The protection provided by your homeowners insurance policy can end up saving you a lot of money in the event of many different catastrophes. However, you might be unsure of whether it could save you money on your taxes. So, is home insurance tax-deductible? What about other forms of insurance?
For questions like these, it’s important to hear the answers straight from the real pros, AKA independent insurance agents. Ask agents anything. They have the answers. Here’s what they have to say about homeowners insurance and other types of coverage and whether they’re ever tax-deductible.
Is My Homeowners Insurance Tax-Deductible?
Typically the answer is no. Homeowners insurance premiums are not tax-deductible because the Internal Revenue Service (IRS) does not allow you to itemize payments for your coverage on your taxes. However, if you use a portion of your home as an office, you can often deduct that part of your rent and utilities from your taxes. Also, sometimes homeowners premiums can be deductible as a business expense in other ways, such as if you’re a landlord.
What about My Auto Insurance?
The answer again is typically no. Unless you’re a business and you purchased commercial auto insurance. But standard car insurance for individuals is not considered a deductible expense by the IRS. Though it’s important to keep in mind that if you run a business out of your home and have a vehicle that’s used for business purposes such as deliveries, you may be able to deduct all or part of your premiums. Make sure to explain your situation to your accountant.
Is Business Insurance Tax-Deductible?
This one is, yes. Business insurance premiums can be deducted from your taxes because they are recognized by the IRS as being legitimate business expenses. You need to protect your business against risks like theft and lawsuits, so legally business insurance is considered “ordinary and necessary” and can therefore be deducted. That’s just one more incentive for owners to seriously look into business coverage to protect their businesses.
Can I Get Other Discounts on Insurance?
Yes, many insurance companies offer several discounts on various different types of coverage. A common discount offered by most insurance companies is known as a bundling discount, which is applied if a customer chooses to purchase both auto insurance and home insurance, for example, through the same company. Both of these coverages can then be combined into a single premium at a discounted rate, and it’s often up to 25% off.
Other common insurance discounts include:
- No claims history discounts: These discounts are offered by insurance companies when a policyholder hasn’t made any claims through their coverage in a specified amount of time, such as a couple of years.
- Good driver discounts: These discounts are offered by car insurance companies who reward policyholders for having clean driving records in terms of no accidents or other traffic violations over a specified amount of time.
- Loyalty discounts: These discounts are offered by some insurance companies who want to encourage customers to stay with them. Discounts are awarded to policyholders who keep their coverage with the same insurance company for several consecutive years.
- New home discounts: These discounts are offered by many home insurance companies to customers who purchase brand-new homes. It may be surprising, but homes with brand-new construction are much cheaper to insure than older homes.
- Driver safety course discounts: These discounts are often offered on commercial auto insurance when the business requires their employees to complete a state-approved driver safety course prior to being cleared to operate company vehicles.
Your independent insurance agent can tell you even more about many other common insurance discounts offered on several different types of coverage, and help you find other ways to save on the protection you already have.
Are Proceeds From Insurance Taxed?
No, proceeds from insurance are not able to be taxed based on the principle of indemnity. If you collect a payout from your insurance company after a tragedy, this payment cannot be taxed because you did not actually make any money. Insurance payouts are just making you whole, or in other words, bringing you back to the same spot you were in financially before the event. So, if your house burns down and you collect a home insurance payout, it can’t be taxed.
Which Other Types of Insurance Can’t Be Taxed?
Payouts from life insurance coverage cannot be taxed. When the policyholder dies, the lump-sum payout that goes to their beneficiary is not taxable. Payouts from insurance like this are not considered gross income, however, if you accrued any interest over the life of your policy, you do need to report that on your taxes. Also, benefit payments from worker's compensation insurance cannot be taxed, either. They are not the same as making additional income.
What Does Homeowners Insurance Cover?
Even if you can’t deduct your premiums from your taxes, homeowners coverage is still absolutely important to have. Home insurance provides protection for much more than just the physical structure you live in. The major coverages provided by homeowners insurance include:
- Liability: Covers legal expenses like attorney/court fees if you’re sued for bodily injury or property damage to a third party. Settlement fees if you lose the case are also covered.
- Additional living expenses: Covers extra costs if your home gets badly damaged or destroyed and forces you to live elsewhere temporarily. Reimbursement for things like hotel rooms, eating out, extra gas mileage, and more is covered.
- Structural damage: Covers the “dwelling,” or structure of the home. Damage to/destruction of the dwelling is covered against listed perils.
- Personal property damage: Covers personal belongings like furniture, collectibles, clothing, and more from many incidents. Property stored off-premises is often covered too, though with a much lower limit.
Your independent insurance agent can help you find the right homeowners coverage and also answer any other questions you may have about what this protection can do for you.
What Does Business Insurance Cover?
Besides being tax-deductible, business insurance provides a lot of important benefits for business owners. The core protections provided by business insurance include:
- Worker's compensation: Covers financial losses if your employees become ill, get injured, or die from a work-related incident. Coverage is mandatory in most states, depending on company size and the type of work being performed.
- Business auto: Covers company vehicles against perils like theft, vandalism, and natural disasters.
- General liability: Covers property damage or injury claims made by a third party.
- Property insurance: Covers loss of/damage to your physical property, including your office’s structure. Protected mishaps include fires, storms, etc.
Your independent insurance agent can tell you about even more ways a business insurance policy could provide you with important protection against many unforeseen catastrophes.
Here’s How an Independent Insurance Agent Would Help
When it comes to answering your important questions about whether your insurance is tax-deductible and all other inquiries, no one’s better equipped to help than an independent insurance agent. These agents search through multiple carriers to find providers who specialize in homeowners, car, and business insurance, deliver quotes from a number of different sources, and help you walk through them all to find the best blend of coverage and cost.
TrustedChoice.com Article | Reviewed by Paul Martin
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