Its more of a historic relic.
Firstly, it probably came from typewriters, since typewriters had a similar thing going for them and a lot of our typing on computers evolved from typewriters.
Two, insert mode is actually pretty expensive for computers to handle. To make space for a new character, in a file, you would have to shift all the characters after your cursor in that file down by 1 to make space, or have a more complicated scheme involving the computer keeping a record of inserted snippets and inserting them into the appropriate places when reading a file. On modern computers, this of course doesn’t matter as much, they are plenty fast, but on the bricks from the 80s, it was very expensive. Overtype is simpler, you replace one character with another.
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