The Biggert-Waters Act provides for coverage on multi-family dwellings in the amount of $500,000 per building, not $500,000 per unit. that is the maximum amount available from FEMA. A private policy is not subject to the Same limit. You may accept a private policy in lieu of a FEMA policy if the coverage is comparable to a FEMA policy.
To determine the amount of coverage required you must consider the amount of the loan, the maximum amount available, and the value of the improvements.