As an insurance agency one of the hardest thing to get the buying public to wrap their heads around is the issue of "Replacement Cost" vs "Market Value" of their homes. The replacement cost is determined by taking all of the details about your home; construction type, year built, zip code, upgrades, basement etc., and using insurance company provided replacement cost guides and coming up with the estimate to answer the following question: "If the home were destroyed what do we (the insurance company) believe it would cost to rebuild the customers home. "
5 years ago when home prices were inflated, it was not uncommon to see a home with a replacement cost estimate of say $300,000 and the sale price or market value could be $400,000. In those cases the lender would require at least enough coverage to satisfy the mortgage amount, even though there was every chance the rebuilding of the home would only take the estimate of $300,000. Today, we often find the situation reversed. There are homes that were insured for $350,000 which could possibly be fully insured (with replacement cost guarantee of 25% which is a topic for another day) for $275,000 or $300,000.
Point is... take the time to look at your home insurance policy. Don't compare it to what the market value is and if you need some guidance call your agent and review it with them. They should be able to look at your policy and review it to see if coverage is adequate.