...be paying for the lot it is built on? When one purchases a home the mortgage company requires you to cover the amount of the loan,($290,000) lots in my area are selling for ($70,000) , does this mean i should only insure for ($220,000) , since the lot is not being replaced?

yes. you cannot insure the actual piece of land its on.

You should talk this over with your agent ,as things differ from State to State ,but I don't think you need to insure the lot ,just the house and what is in it