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Explaining What Is Homeowner Insurance And What It Covers

By Mike Heuer

There are many types of homeowner insurance policies, but this article will focus on insurance for traditional single family homes and just what does homeowners insurance cover for such abodes.

A homeowner insurance plan essentially is an agreement between an insurer and a policyholder to provide coverage against various perils that could damage or destroy the home. Explaining what does homeowners insurance cover can be complicated and varies by each type of policy. But When handling homeowners insurance claims there generally are two methods of paying claims. One is to pay based on the actual cash value, which is the replacement cost minus depreciation. The other method is to provide replacement cost coverage that will repair or replace the home no matter the cost.

The best homeowners insurance plans offer comprehensive coverage against all but excluded perils and have replacement cost coverage. But those plans do cost more than actual cash value policies. That cost can be mitigated by increasing the deductible amount to make the policy more affordable, but there will be more cash to be paid by the policyholders when homeowners insurance claims are filed.

While a peril might be excluded, such as earthquakes or external flooding, an endorsement often can be purchased to provide coverage for such events. Most homeowners will have no need for something like earthquake insurance, but those living in active areas can benefit from the additional protection. An endorsement is similar to an insurance rider that offers extended coverage for a particular peril.

Some people want to know: Is homeowners insurance tax deductible? The quick answer is: “No, they are not.” No states or the federal government offer tax breaks for carrying homeowners insurance, which is viewed as a necessity but essentially would subsidize insurers if giving tax breaks for coverage.

But, if a claim is filed and the insurer does not pay the full amount to repair or replace the home, any funds spent by the homeowner likely would qualify for a tax deduction. So, for those who wonder: “Is homeowners insurance tax deductible?” No, it is not. But out-of-pocket costs for repairing or replacing damaged homes would be in most cases.

The best homeowners insurance plans can vary based on the type of home and owners’ needs. Some policies, like an HO8 form, are intended for older homes and provide basic coverage against standard perils and little else. For additional insurance homeowners can purchase endorsements to enhance their protections.

Newer, costlier homes can benefit from the comprehensive protection provided by an HO5 form, which gives replacement cost protection against all but specifically excluded risks. Endorsements will give additional insurance homeowners can use to protect against landslides, volcanic eruptions and external flooding to provide even greater levels of insurance coverage.

Regardless which type of insurance coverage is needed, there are ample options to help homeowners insure their investments and keep their families protected against potential damages or losses that might leave them without a place in which to live but for the insurance coverage they carry.