This is a very common question, especially in today’s economy. More than likely your insurance company is requiring you to carry the replacement cost they determined based on your home’s specifications and location. While it may be tempting to only cover your home for its market value or what you owe on your mortgage, you should always be insured for 100% of the replacement cost. With the dwelling coverage at $80,000, your home is currently only insured for 64% of its replacement cost. If a home is insured for less than 80% of its replacement cost, the coverage reverts to actual cash value and in the event of a covered claim, rather than receiving the total amount it would cost to rebuild or repair the home, you would only receive the depreciated value. Typically this amount is lower than is needed to rebuild and you would be left to pay the remainder. It sounds like your insurance company is trying to prevent you from winding up in this scenario.
Keep in mind that construction costs tend to increase over time so the cost to rebuild your home with the same materials and quality can be higher than the actual market value, especially if you have an older or more customized home. Insurance is really a worst case scenario business and you want to be sure that should your home be destroyed, you have enough coverage to rebuild. Take a look at our Homeowners Insurance Calculator for an estimated range of dwelling coverage amounts for your home.