Replacement Cost - Homeowners Coverage
Why do I have to carry so much insurance on my home?
For one thing, we believe you should have an amount of insurance that is sufficient to rebuild your home - probably your largest investment - in the event it is totally destroyed by a fire or tornado.
In addition, your policy contains what is called an insurance-to-value provision. This is essentially an agreement between you and the insurance company. In exchange for your agreement to insure your home for at least a specified percentage of its replacement value, the company agrees to issue the policy for a lower premium than it would charge for a policy without this provision. After a loss - even a small loss - if the amount of insurance on your home isn’t sufficient to satisfy your part of the agreement, then the insurance company can reduce the amount it would normally pay.