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How does that property insurance policy protect anyone from a decline in the value of the house.
After a fire (absent the expense of subsequent rebuilding) your home will usually be worth less on the open market than prior to the fire.

There is are no equivalents to puts and calls for homes.
Sure there are, puts and calls can be written on any underlying asset. For individual real estate assets specific option contracts can (and are) written.

And if you have to move across country and sell your house after the real market has turned down, how does the insurance policy hedge such risk?
You're eitehr intentionally, or accidentally, reaching... to try to equate the hedge of hazard insurance to market volatility insurance.

If its easier to understand, you *could* trade specific options on the ownership of your own home with local expert real estate investors/agents. You could go long ownership of your home, and buy a put option (the discretionary right to sell it at a specific price during a limited period) to a local investor, at some mutually agreed price. You can negotiate the same with calls (long or short.) You can't "borrow a house to sell" (at least not very easily,) so short positions would have to be entirely synthetic (long put, short call,) but certainly doable.

Not typical... but the point is conceptual... and the investment account management is actual.

Dave Donhoff
Leverage Planner
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