Insurance requirement from bank

[Dave Holland]

I'm getting conventional financing on a 4 unit property with a purchase price of $130k. The appraisal came back with a rebuild cost of $428k and my bank says my insurance must be for at least 80% of this cost. I was planning on insuring for less than this, around $150k, and obviously the insurance is now going to cost quite a bit more than I was anticipating. My banker said this is the industry standard to use 80% of the appraised rebuild cost. Is this right? Does anyone else who is wiser than me in regards to insurance have any tips to share?

[Jason Bott]

@Dave Holland I have seen the banks state something in the order of "Building limit at our rebuild estimate $428,000, unless you have another insurance carrier estimate showing a lower limit".   So, if you can get another rebuild estimater to show $350,000 from an insurance carrier, then they may consider that.

If that does not work, see if you can get an agreed value policy with a lower limit.  We have had to do this when the rebuild is multiple times the actual purchase price and the insurance carrier will not want to offer such a high limit.