Hi Haille,
You are right, in house insurance the insurance company does not cover the site (except for occupier/tenant liability).
The market value may exceed, match or be lower than the current re-build costs but there is no correlation between them.
The insurance company will only indemnify up to current re-build value of the property (including any site clearance costs etc) assuming of course the property is adequately insured in the first place.
Any amount insured over the current re-build costs is surplus to requirement from an insurance point of view.
As 'location' influences house prices a property in location A built to the exact specifications as a property in location B could command very different prices.
Sometimes the market value will be below re-build costs. The point to note is that whatever the market value it is imperative that at least the re-build value is insured. Not doing so would result in the 'average clause' being applied by the insurance company in the unfortunate event of a claim (even a partial loss).
Simply, this means that if your property's re-build value is €300,000 but is insured for €250,000, a €100,000 loss could result in a €83,000 payout.
Remember when calculating re-build value to adjust for extensions, boundary walls, out-buildings, higher than average fittings/floor coverings etc.
Re-build costs too vary by location. The Society of Chartered Surveyors publishes a guide to re-build costs annually and this is available at [broken link removed]
regards,