I´m planning to attend SDSU for a term, however, they claim that I can´t waive their mandatory insurance even though I already have better international coverage from my home country which would meet all J1 requirements. Is it actually legal for them to force me to purchase a costly pre-approved plan with less coverage, meaning I´d have to pay for two plans....
Yes, they can. See their information for foreign students:
J-1 exchange students are required to purchase the pre-approved policy offered by JCB Insurance Solutions in order to satisfy the California State University insurance requirement
As always with bundled services, you can most definitely find something better and cheaper elsewhere, but alas... they are bundled.
They are free to set the terms and you are free to not accept them. They're required by the US immigration to ensure that you have medical coverage with certain limits and coverage requirements, and the easiest way for them to ensure that is by providing that coverage and forcing all the J1 students to have the one they're providing. Otherwise you'd have them evaluate thousands of policies of all the J1 applicants to ensure they're adequate - that would be untenable.