What you paid for your home and how much it would cost to rebuild if it were destroyed by a fire are two different prices. What someone is willing to sell you a home for dictates the price of purchasing a home, where as the cost of materials, labor and compliance with regulations impacts the price to rebuild your home if it is destroyed. As your insurance policy will rebuild your home if it is damaged, your insurance policy is based on how much it would cost to rebuild your home, not how much your home would sell for.