Most homes are insured for the cost of rebuilding an identical structure, NOT the market value of the home.  After a total loss, most people want to rebuild their home just like it was before the claim.  If you have beautiful oak flooring, you probably want beautiful oak flooring — not plywood and carpeting. If you had 3 bathrooms, you probably want 3 bathrooms. Typically, the cost to replace a home just as it was before the loss is higher than the home would be sold for.