Correct; I do not believe including that part of the insurance payout that represents the compensatory portion for the loss of the structure is the correct treatment.
See https://www.irs.gov/pub/irs-pdf/p547.pdf
You may clearly have a gain as a result of the payout, but it would seem to be proper to report the payout representing loss of rent as rental income while reporting the payout representing the loss of the structure as a "sale".
The land can be converted to personal use in the program because it only affects the program's worksheets. If you continue to hold the land as an investment and later sell it for a loss (most likely that would be unusual), the loss can be recognized regardless.
