Companies generally offer one of three types insurance. Replacment, ACV (Actual Cash Value), and Market Value. The first two types are the most common.
Replacement cost is the cost to rebuild your home today. Most replacement cost estimates seem like a high amount and usually is the most expensive policy. The reason the replacment value is high is because you don't know when you are going to need your home replaced. If there is a natural disaster like Katrina and your house burns down to the ground at the same time but due to other causes, your home has to compete for goods and services which are now at a higher price. Also most Replacement cost policies will only cover 100% of the rebuild if you are insured up to the coninsurance amount which is commonly set at 80%. If you are insured at 50% of replacement cost at the time of the claim, they will only pay 50% of the cost to rebuild. Better to play it safe and make sure the company pays for the repairs you paid them to insure against.
ACV or actual cash value is the replacement cost minus a depreciation amount. This coverage is similiar to auto insurance. If you have comprehensive and collision coverage on a new F-150 truck the company may pay 30k if the truck is totaled. In 5 years if you have the same policy they may only pay 15k. That is because the truck is worth less today than it did when it was new. That is how ACV works. And it also needs to be insured to a specified amount if the policy has a coninsurance clause. Basically in the event of a total loss, you could pay out of pocket the depreciation value which could be up to 50% plus whatever percent you are short on your coinsurance. This could add up to a financially devastating amount.
Market value is exactly that. In the event of a total loss they will pay you what the house is worth on the market. If it is a partial loss, most companies will pay ACV. This is fine if you are only worried about a complete loss and would rather buy another house like yours rather than waiting for the house to be rebuilt.
You really get what you pay for. I hope this helps.
The Home Insurance Specialists