[LyndsySimon]

That's it exactly.

I live in an inexpensive area, and purchased my five(-ish) bedroom home for ~$125k. It would cost about $240k to rebuild, exclusive of the cost of the land.

When buying homeowner's insurance, my interest is that I would not lose value in the event of my home's destruction; I want to be able to buy another home of similar value and not owe more money than I already did. However, my mortgage requires that I insure the home's replacement value, and no insurer that I could find would cover me for only $125k.

This results in what I believe to be a negative incentive: assuming no equity, I currently owe $125k and have a home. If my home were to burn to the ground tomorrow, I would have a check for $240k. I'd then use that check to pay off my existing mortgage and buy a home of similar value outright - leaving me a profit of ~$115k in the process.