Ron Hardin wrote:

You don't have to replace the real estate; so that part of the cost
doesn't need additional insurance.

If your house itself actually has risen in replacement cost, insurance
companies are happy to insure it for more; the more they insure, the
happier they are.

They just don't want to insure it for more than it's worth, because
it encounters a moral hazard, namely people making money by setting
fire to their house; which raises the odds against them enough for them
to notice on the bottom line. They want to be sure you can sell it
for more than you're insuring it for, so you sell rather than burning.
--
Ron Hardin


On the internet, nobody knows you're a jerk.

That argument is a non-starter. First they won't give you
more money that it will cost to replace the house, no matter
what you insured it for. Second, they would be very happy
if you burned it down yourself and you will most likely be
caught and they won't have to pay anything. Third, burning
for profit is rather risky and likely to lead you right to
the pen.

Finally, although insuring a house or building for more than
it is worth won't end up with a profit if it burns, you can
insure a persons life for any amount you want, but you don't
see people dying by the droves as others kill them off to
get the life insurance. Maybe it's because it is MURDER.
And, the insurance company doesn't give a damn about moral
hazards, they just care about profits so that's why they
don't pay anything that results from illegal activities of
policy holders.