Many people are frustrated and confused as to why their home is insured for a higher amount than the market value. This is an understandable concern, because no one wants to feel like they are being ripped off by the insurance company. This happens because houses are insured based on the replacement cost and not the market value. Replacement cost figures in the cost of all materials and labor that it would take to rebuild your house. Even though the housing market is still bad, the cost of materials and labor have not dropped. Also, if your home is currently insured for around the same amount as the market value, there is a good chance you are severely under-insured. It is very important that your home is insured for the proper amount because if not, you are responsible for the additional cost not covered by your policy. I have seen cases where a home is under-insured by over $40,000. It is important that you know how your insurance company decides your houses value. At Farmers, we use an estimation/valuation program from Marshall & Swift that determines replacement cost by taking an accurate inventory of your home. We factor in wall heights, floor coverings, construction type, foundation shape and many other characteristics that are unique to your home to make sure every inch of your home is covered if it ever needed to be rebuilt.