A flood insurance quirk makes basements a bad place to keep your stuff

American basements are a hodgepodge of personal property, leveraged as storage units, man caves, game rooms, wine cellars, home bars and secondary living rooms.

The problem is: If your basement floods, your flood insurance policy likely won’t cover damages to most — if any — of your belongings.

It may be a consequential exception for policyholders as storms (and resulting flood damage) are expected to grow more intense due to climate change, experts said.

“You can put anything you want in your basement, but don’t expect it to be insured for floods,” said Peter Kochenburger, an insurance expert and visiting law professor at Southern University Law Center.

Flooding is the “most common and costly natural disaster in the United States,” according to the Insurance Information Institute.

To that point, 99% of U.S. counties have experienced a flood since 1998 — and more than 40% of flood insurance claims are from outside high-risk flood areas, according to FEMA.

Flooding causes 90% of annual disaster damage in the U.S., according to the Federal Emergency Management Agency. Just an inch of water can cause roughly $25,000 of damage to a property, the agency said.

But homeowners and renters insurance policies don’t cover flood damage.

Consumers need separate insurance to cover physical damage caused by a flood, defined as water entering a home from the ground up. That may occur due to storm surge, heavy rainfall or an overflowed body of water like a lake or river.

(Homeowners insurance may cover water damage in some instances — burst pipes, sump pump backup, even water entering from the ceiling due to a collapsed roof — though insurers may require consumers buy additional coverage beyond a policy’s basic terms, experts said.)

Most people who have flood insurance get it through the federal government, via FEMA’s National Flood Insurance Program, experts said.

Americans had about 4.4 million residential NFIP policies at the end of 2023, according to FEMA. They had total coverage of $1.2 trillion.

Many homeowners go without coverage. On average, only 30% of U.S. homes in the highest-risk areas for flooding have flood insurance, according to the University of Pennsylvania’s Wharton Risk Center.

NFIP policies offer up to $250,000 of residential coverage for building structure (like the foundation and electrical system) and a maximum $100,000 for personal property (like clothing, furniture and electronic equipment).

Nearly 21,000 policyholders filed a claim in 2023, with an average payment of almost $46,000, according to FEMA data.

The average annual flood insurance premium was $700 in 2019, it said.

More from Personal Finance:
Why climate change may cost you big bucks
Why term life insurance is often best
Your homeowners policy likely won’t cover a ‘mysterious disappearance’

Private insurers also offer flood policies, and may offer higher coverage than FEMA’s policies, according to the Insurance Information Institute.

There were 58 private companies writing flood insurance in 2020, the group said. The five largest by premiums in 2022 were American International Group, Zurich Insurance Group, Assurant, AXA and Berkshire Hathaway, respectively, it said.

Basement coverage “is limited” through NFIP policies, FEMA said.

The agency defines a “basement” as any area of a building with a floor below ground level on all sides. Even rooms that aren’t fully below ground level — like sunken living rooms, crawlspaces and lower levels of split-level buildings — may still be considered basements, the agency said.

Its flood policies exclude the following items from coverage in a basement:

• “Personal property” like couches, computers, or televisions
• Basement improvements (such as finished flooring, finished walls, bathroom fixtures, and other built-ins)
• Generators (and similar items)
• Certain dehumidifiers

Items “stored in a basement, meaning they are not connected to a power source,” aren’t covered, FEMA said.

Consumers concerned about flood risk and insurance coverage should consider not putting their stuff in a basement, if possible, Kochenburger said. They should “move it to a storage unit or somewhere else” on higher ground, he said.

The following basement items are covered, but only if NFIP policyholders buy additional “contents coverage,” which is optional, and if connected to a power source, FEMA said:

• Clothes washers and dryers
• Air conditioners (portable or window units)
• Food freezers and the food in them (excluding walk-in freezers)

Private insurance policies may offer broader property coverage in basements, depending on the insurer, said Don Griffin, vice president of policy and research at the American Property Casualty Insurance Association.

That may be via an add-on to a homeowners insurance policy, as with water backup from drains, for example, he said.

One silver lining to all this: Fewer U.S. homes are being built with basements. The share of new single-family homes with full or partial basements has fallen by more than half since the mid-1970s, from 45% to 21%, according to U.S. Census Bureau data as of 2022.

On Feb. 6, FEMA announced a proposal to update its NFIP program and potentially enhance basement coverage for policyholders.

“Policyholders with basements continue to be surprised that under the current Dwelling Form, the policy provides limited coverage in a basement,” FEMA wrote.

However, it’d likely take more than a year for consumers to see these changes enacted, Griffin said.

“Flood insurance’s primary focus is structure: the building itself,” Kochenburger said.

Here are examples of how NFIP policies cover building and structure in basements, FEMA said:

• Central air conditioners
• Fuel tanks and the fuel in them
• Furnaces and water heaters
• Sump pumps, heat pumps, and well water tanks and pumps
• Electrical outlets and switches
• Elevators and dumbwaiters
• Certain drywall
• Electrical junction and circuit breaker boxes
• Stairways and staircases attached to the building
• Foundation elements and anchorage systems required to support a building

Policyholders can also get compensation for cleanup costs such as pumping out trapped floodwater, treatment for mold and mildew and structural drying of the interior foundation, FEMA said.

As a precaution, the agency recommends documenting the manufacturer, model, serial number and capacity of equipment in your basement like furnaces, central AC units and appliances like freezers, washers and dryers. Should you experience flooding, the NFIP requires this information during the claims process, FEMA said.

Policyholders should review their flood insurance policy for a comprehensive list of covered items and expenses, according to FEMA.

Flood risk is only expected to worsen due to global warming.

Extreme weather events like heavy rainfall, hurricanes and floods — which are “increasing in frequency and/or severity” — conservatively cost the U.S. close to $150 billion each year, according to the Fifth National Climate Assessment.

That sum is expected to rise in the near term, according to the 2023 report, which the federal government issues every four to five years.

The U.S. experienced 96 billion-dollar weather disasters in the two decades from 1983 to 2002, costing a total $546.3 billion in damages, according to The Pew Charitable Trusts. In the ensuing two decades — from 2003 to 2022 — those sums ballooned to 244 disasters and $1.95 trillion in costs, Pew found.

Annual losses from flooding are expected to grow by 61% by 2050, according to the Fifth National Climate Assessment.

Yet, there’s a shortfall in the number of properties insured for floods relative to those at risk, Griffin said.

About 14.6 million U.S. properties are at “substantial risk” of flooding, of which 5.9 million (and their owners) are underestimating their risk because they’re not within a designated FEMA Special Flood Hazard Area, according to a 2020 report by the First Street Foundation.

“Where it rains it can flood,” Griffin said. “That’s pretty much everywhere.”