'The purpose of insurance is to bring the insured as closely as possible back to the original condition they were in before the loss.'
Going with market value could be a huge mistake. Let's take my Dad for example. He bought a new Chevy Cobalt just over a year ago, and he's a medical courier. He drives over 50,000 miles per year, and just totaled his car (true story, not making this up). The 'market value' on a 1 year old Cobalt with over 50k miles is extremely low (compared to the loan value), and they can't really gauge 'replacement cost' accurately in this case.
He's with USAA (ex-marine, 13 years of service), and they had automatically put 'gap insurance' on the loan, which covers any difference between actual value and loan/lease amount. So, he came out fine, lucky him, and just picked up another new car.
Most people are actually pretty under-insured due to factors like this. What those CONSTANT SPAMMING COMMERCIALS don't tell you is that when they save you XXX on your car insurance in 15 minutes that they're cutting corners. (That GD green lizard LIES!)
And usually you won't find out until you've filed a claim, are without a vehicle, and possibly suffering from a physical injury.
I used to be an insurance agent and owned a brokerage, and I've seen insurance companies pull every underhanded dirty blatantly illegal trick in the book, usually they get away with it because people don't know the rules and don't fight back properly.
What is properly? File a complaint with the Department of Insurance when they start to give you the run around. Actually, fill out the complaint/form and send a copy to your agent, broker, and the insurance company directly demanding a satisfactory resolution to your claim within 30 days. If they don't get on the ball and help, then file the complaint.
So, you've asked a very good question, and it would be good to ask your insurance company the same type of question, and maybe bring up a possible scenario applicable to your own driving habits.
And if you qualify for USAA, get it!!! (Must be military, or in a military family, or married to a USAA member, etc).
Most top rated car insurance company use the replacement cost value. What that means is they would cover the cost it will take to to bring the car to its original condition before any damages at today's costs. The same things applies to HO insurance policies.