Property not worth Rebuild cost

[JonPaul Kessinger]

I am looking to purchase a large home in my small community. Most insurance companies are wanting to insure it at a minimum of 80% of the rebuild cost. The home is only worth 150k once fixed up but would cost close to 450k to rebuild. Do you guys have any advice on trying to insure it at 150k? If it was to burn down and be a total loss I would not build on the lot and deploy the payout into another property. Any suggestions where I could find Landlord insurance that would allow me to insure it for the 150K? Side not I am buying the property for 55K from a pocket listing.

[Jason Bott]

@JonPaul Kessinger there are policies out there that will insure it for $150k on an ACV policy.  It may not work if your lender needs to have a Replacement cost policy to close the loan.

You will need to get an Agreed Value policy to avoid being penalized for being underinsured.

If you do not get the Agreed Value endorsement and you have 80% coinsurance (sounds like that what has been quoted), the policy can penalize you proportionally for being underinsured.  Example - If the policy is written for $150k, and the rebuild cost is $450k, they can turn around and say you were only insuring 33.33% of the building, therefor we are only paying 33.33% of the claim.   With a $100k kitchen fire claim, they may only give you $33k.  

*Please note this is a simplified explanation and each policy can be written differently.