My insurance company has the value of my property way too high.
Is the premium a certain percentage of the value or a set coverage rate?
Do you have a policy set on replacement value or actual cash value? You should be able to set a cash value for the property if you have an ACV policy. As long as the mortgaged amount is covered you should be fine.
These days, the cost to rebuild (replace) a property is often more than the original purchase price or the current market value. I would want the insurance company to rebuild or replace my property in the event of a total loss. Replacement cost insurance policies set the “insurance value” of the property at the cost to replace regardless of the actual market value of the property.
The premium is set based upon the insurance risk for the property in the area where the property is located.
Dave makes a great point. We take a calculated risk by insuring our cheap rental houses for an agreed upon actual cash value. We’re investing in areas that are older well established neighborhoods where there is no new construction because it’s cost prohibitive. When you can buy houses and fix them up for a total of 25k, no one is going to come build a similar house for 80k because it wouldn’t be worth the cost of construction. So we insure for our invested value in the house. If the house becomes a total loss, we’ll get our invested money back out but we’ve lost an income producing asset. It’s just a risk we take because replacement cost insurance would be so expensive that it would really eat into our cash flow.