Insurance Requirements for Rental Property

[Chris Taylor]

I’m a newbie so I think this question is appropriate. I’ve received different answers from different people so here it is. For rental properties ... do lenders require your insurance to cover replacement value of the structure or just a typical “landlord” policy? I have been told if you have a loan on your rental property you need to insure it for the replacement value.

However, my agent that I use for insurance on my primary residence is telling me that all his REI clients have a landlord policy that just covers their loan amount or the fair market value of the property. The market value is usually much less than the replacement cost so there's a big difference in premiums.

What my insurance agent is saying makes more sense because why would a bank require you to have coverage beyond the amount they are lending you? Obviously I will be checking with my bank and other lenders but I was just curious if anyone had a definitive answer.