re: Homeowner insurance question regarding dwelling protection vs replacement cost

If you do reduce it You'll likely soon get a letter from you're mortgage company requiring your Covg A (dwelling) to meet or exceed the value of your loan.

90% of policies have some form of guaranteed replacement value endorsement - whether it be Extended Dwelling, Dwelling Extension - or some other similar endorsement that adds 20% to your replacement cost (inflation and catastrophe protection).

Also if you have a total loss, you have the option to get a check equalling your dwelling, personal property, and other structures coverage (which should be WAY over your loan value).