Your agent is saying they could meet their obligation by, for example, replacing a $150,000 BMW 760 with a $20,000 Ford Fusion or a mansion in a ritzy neighborhood with a shack in the ghetto. I find that hard to believe. According to my State Farm agent, replacement means the exact same model or, if it's no longer available, the nearest match.
Gunbroker has several Winchester Model 12 shotguns for sale at prices ranging from $200 to $25,000. Even something as common as a Remington 870 ranges from $150 to $500. It's best to pay for a professional appraisal of a gun's value and insure it for that amount. If it's collectible, keep up with changing prices so you don't find yourself underinsured.