Though not an expert by any means on insurance, I would think the big problem with over insuring would be the higher premiums you pay along the way. So in the unlikely event of a rebuild, you are insured for $1.5M but only need $1M perhaps you could have to look at how much money you have paid over the years for that extra $500,000.
As your insurance should be reviewed each year, you can always adjust it to cover a bit more each AGM to reflect the increase in value of your property and the projected increases of building materials, labour etc should the unthinkable happen.