I could be mistaken on this, as I don't live in an area where such things are common, but my understanding is the issue is that if your house is destroyed by say, a hurricane, no insurance provider (or fema) gives you a bag of cash and says "move", reimbursement is predicated on rebuilding the structure where it stood.
Insurance makes you whole, not the property. You are perfectly welcome to pocket the cash. Although if you have a mortgage, you do have an additional obligation to maintain the value of their collateral or pay off the loan.
If you have replacement cost coverage (as opposed to actual cash value (=depreciated value) you typically have to use it to reconstruct the home if you want the full amount. This is typical.
"We will pay no more than the actual cash value of the damage until actual repair or replacement is complete." [0]
