There's several ways to handle this, and what is the best, simplest and easiest way depends on exactly what the payout was for, and exactly what "you" actually used the payout money for.
For starters, since your insurance premiums are a deductible rental expense, any payouts received are reportable income.
One way is to report the insurance payout as a part of the rental income. Then for your "loss" that will reduce your cost basis on whatever was lost. But the "restoration" of that loss will bring your cost basis right back up to what is originally was, or higher.
If you want, provide the fine details on what was lost, what insurance paid out, and what you paid out of pocket. Then I can see if the way mentioned above is the best way to go, or maybe suggest another way.
