Why can't I insure my home for what I owe if it lower than the replacement cost?

This is because there is a co-insurance clause in a homeowners insurance policy. This is a provision that requires policyholders to carry a certain percentage of the value of their home in insurance. Typically, this requirement ranges from 80% to 100% of the home's value. The purpose of the co-insurance clause is to encourage homeowners to insure their property adequately.

Here's how it works: If a homeowner doesn't have sufficient insurance coverage as defined by the co-insurance clause (e.g., less than 80% of the home's value), they may receive a reduced payout in the event of a claim. The payout is reduced because the homeowner is considered to be a "co-insurer" of the risk. This means that if the coverage is less than the required percentage, the insurance payout for a claim will be reduced proportionally.
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For example, if a home is worth $100,000 and the insurance policy requires 80% coverage, the homeowner should have at least $80,000 in coverage. If the homeowner only has $60,000 in coverage and suffers a loss, the insurance company may only pay a portion of the claim, based on the ratio of the actual coverage amount to the required coverage amount.
It's important for homeowners to regularly review and adjust their insurance coverage to ensure it meets the requirements of the co-insurance clause and to avoid potential underinsurance issues.