Getting the best insurance coverage may not cost more

There are a number of ways to save on homeowners insurance, but reducing coverage because home values have dropped isn't one of them.

Q. Prices in our area are stabilizing, but they are still down about 30 percent from their peak about five years ago. We're trying to find ways to save money, so we were wondering if it would be possible to trim the limits of our homeowners insurance policy by 30 percent to match the decline in our property's value. What do you think?A. You could reduce the limits of your policy to cut your insurance costs, but it would be a lousy decision. The primary purpose of homeowners insurance is to provide the needed money to repair or rebuild a home after a fire or other disaster. But while home values in most parts of the country have declined sharply during the past several years, the prices of construction materials and professional labor have continued rising. So, rebuilding your home would cost even more today than it would have when prices began to drop several years ago.Still, it would be wise to call a handful of insurance companies and insurance brokers to help ensure you have the proper amount of coverage at the best possible price. I recently did that myself and trimmed nearly $200 off my annual bill by switching to a different, financially stronger company - and received an extra $100,000 in protection as well.Some say that homeowners who want to accurately estimate their rebuilding costs should first hire a local contractor, appraiser or even an insurance adjuster to provide a quote. That's a good idea, but the cost of the review will reduce any potential savings. A cheaper alternative is to visit Accucoverage.com, a company that provides an online replacement-cost estimate based on the same construction-cost data that insurers use to set their annual premiums. The fee for the service is $7.95.Q. I purchased my first rental house last year and charged the tenant $800 per month. He moved out earlier this year, but it took me three months to find a new renter, who also now pays $800 per month. Can I deduct the $2,400 in "lost rent" during the three months it was vacant on my next tax return?A. You can't take a deduction for rent that you did not collect, but the $2,400 in lost income caused by the three-month vacancy still will help to lower your taxes. Rental income and expenses alike are reported on the Internal Revenue Service's Schedule E, "Supplemental Income and Loss," which is filed with the property owner's Form 1040. Because your rental didn't generate any money for three months, you'll be liable for taxes only on nine months' worth of income, rather than 12. Your operating expenses for loan payments and the like probably will be much higher, which would create a tax-deductible net loss if you manage the property yourself. Such deductible losses are limited to $25,000 a year, are phased out for those who earn more than $100,000 and are unavailable to those who make $150,000 or more.Read IRS Publication 527, Residential Rental Property, by downloading it from the irs.gov website or by calling the agency at (800) 829-3676. Consult a tax professional for additional details.Q. A local lender is running a radio advertisement saying it will "roll in" all of the closing costs into its loans so borrowers don't have to pay any upfront cash out of their own pocket if they want to refinance. How do "roll-ins" work? Are they a good deal?A. Roll-in loans are good for buyers and refinancers who don't have a lot of cash to meet their closing costs, but choosing this option can add several thousand dollars to their future interest charges.To illustrate, let's say that you need a $200,000 mortgage and that the lender would charge a total of $5,000 in prepaid points and other closing-related expenses. You could pay the expenses in cash and get the loan for exactly $200,000, or instead roll the closing costs into the loan and owe $205,000. Payments on a 30-year, $200,000 mortgage at today's average interest rate of about 5 percent would be $1,074. If the $5,000 in closing costs was instead rolled into the balance, the mortgage would be $205,000 and the payments would be $1,100.Paying an extra $26 a month may not seem like much, but the added financing costs really add up in the long run. In the course of 30 years, rolling $5,000 in closing costs into the mortgage balance instead of paying them in cash would result in an additional $4,662 in interest charges. That's why it's usually best for borrowers to pay their closing costs upfront rather than financing them over the life of their loans.bull; The booklet "Refinancing the Right Way" provides several money-saving tips to get the best possible loan and an easy-to-use work sheet to determine whether refinancing makes sense. For a copy, send $4 and a self-addressed envelope to David Myers/REFI, P.O. Box 2060, Culver City, CA 90231-2960. Send questions to that same address and we'll try to respond in a future column.#169; 2010, Cowles Syndicate Inc.