I understand that, this is not what he is talking about. He is referencing that if you had your home insured for $500,000 and had a $200,000 fire and a claim paid out for $200,000, after the claim your policy is now only worth $300,000 and you have to purchase the additional $200,000 again for the remainder of the term of the policy (they call this the reinstatement premium) . In actual fact what you are talking about is more less called co-insurance. On most home insurance policy the insurer warrants that you insure to 100%, on most commercial occupancies the co-insurance factor might be 80% or more likely 90% of the full rebuilding value...... the lower the requirement the higher the rate per $100 of insurance.