I went to a local insurance broker and got better coverage and now pay less.

The prices vary from $550 to $2K depending on the coverage. 

65k is my monthly rental revenue not including any debt coverage or expenses.

Or at the very least it constrains proceeds due to debt service coverage limitations.That said, if you have the funds to pay cash you also have the funds to make a larger down payment. 

Sell the current primary tax free and use those proceeds to supplement the purchase of the new investment property to bring down your ltv. 

You have $350,000 in cash available to invest, and your bank has said that the potential financing terms would be 80% loan-to-value, 1.20 minimum debt coverage ration, 6.75% interest (fixed for 5 years and floating for the remaining 15 years of a 20-year term), with 1 point payable at the closing.

@William Huston a few comments;-If you had landlord policy, you should have had Loss or Rents coverage. 

They can also include $1M premises liability coverage with the structure coverage.

When you buy a property for a rental, you will want "Dwelling coverage". 

Without the supplemental income on the for sale properties, the value is not there and people are dropping their prices.