The new Q&As state that both contents and building will be considered to have a sufficient amount of flood insurance coverage for regulatory purposes as long as some reasonable amount of insurance is allocated to each category. (#39).. but the example they use does cover the dwelling for the insurable value and then the contents for the difference. We have a $180,000 loan. The dwelling can be insured for a maximum of $150,000 (insurable value) so the underwriter wants to also hold contents. The dwelling policy came in at $125,000 (which by itself is underinsured), but with the content insurance coverage of $70,000, the total amount of flood insurance coverage exceeds the amount of the loan. Are we okay in not requiring the dwelling coverage to be increased to the insurable value?

You need $180,000 in flood insurance (lesser of loan amount, insurable value of building and contents and maximum available from NFIP). You can put $150,000 on the dwelling (fully insured) and $30,000 on the contents are any combination you/borrower like.

You don't have "too much" insurance, you just have more then the regulation requires. You are OK in not requiring the dwelling coverage to be increased to $150,000. In fact, you could lower it down to $110,000 as long as the content insurance stays at $70,000.

I would recommend "fully" covering the dwelling (at least 80% of insurable value and putting the rest on the contents.