Insurance premiums are not the same as an insurance deductible. Premiums are the fees you pay to be insured. Premiums are NOT deductible.
Deductibles are the difference between what your loss is and what the insurance covers. Usually this is stated when you open the policy. If you have a $50,000 claim, we will pay you all but $2,500 (if that is the deductible you choose) That $2,500 IS deductible when you are in a federally declared disaster area.
Whatever your actual losses were from the federally declared disaster area are the only thing you can deduct.
The special treatment is that you can actually deduct the losses as an itemized expense, whereas if you lived in an area that just had a flood and was not declared a federal disaster area, you would not be able to take any deduction for the losses.
Yes, to claim any of these expenses you must itemize. As I mentioned before, you can only deduct the portion of the loss that is in excess of 10% of your AGI.
If your total itemized expenses do not exceed your total standard deduction, you will not get any type of tax benefit from the casualty losses.
Itemized expenses include mortgage interest, state and local taxes up to $10,000, medical expenses in excess of 7.5% of your AGI and casualty and losses in excess of 10% of you AGI with the first $100 not counting towards the loss.
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