Does Flood Insurance Cover Basements?
Hurricane Ida made landfall in Louisiana on August 29, 2021 and wreaked havoc along the Eastern United States, making its way up to New England before turning back out into the Atlantic on September 2. New York and New Jersey were hit hard, with infrastructure unable to handle the unprecedented rainfall. Residents living in basement apartments were especially in peril, and horrible stories emerged of people trapped in rising water.
In the aftermath, there were people confused about what role insurance would play in their recovery. Some didn’t realize that their homeowners policy wouldn’t cover flood-related damage. Even for people who have flood insurance placed through the National Flood Insurance Program or a private provider like Aon Edge, a policy won’t cover everything. Basements, in particular, have certain restrictions that your clients should understand.
What kind of basement flooding is covered?
For houses that have a basement, it is typically the mechanical and operational center of the home. Key utilities such as HVAC, plumbing, and electrical services may enter the house through the basement and then fan out through walls and floorboards to reach each individual room. Plumbing systems, including water heaters, softeners, conditioners, and the associated network of pipes can all pose a flooding hazard if any of that equipment fails.
If a broken pipe or ruptured water heater is the source of your client’s flood, coverage is dependent on the definition of flood. The NFIP definition of a flood is:
A general and temporary condition of partial or complete inundation of 2 or more acres of normally dry land area or of 2 or more properties (at least 1 of which is the policyholder's property)
The sources of floodwater may include:
- Overflow of inland or tidal waters
- Unusual and rapid accumulation or runoff of surface waters from any source
- Mudslides caused by flooding
- Collapse of land along the shore of a lake or similar body of water
This means that plumbing-related basement floods do not qualify for coverage under most flood insurance policies.
What does flood insurance typically cover in a basement?
Assuming your client’s flood fits the NFIP definition, what happens if that water accumulates in a basement? The NFIP’s building coverage applies to basement items that are necessary to “make the home safe, sanitary and functional”. These items can’t be sitting in their original packaging in the basement; they must be connected to a power source and/or installed in their functioning location:
- Well water tanks and pumps, cisterns and the water in them
- Oil tanks and the oil in them, natural gas tanks and the gas in them
- Pumps and/or tanks used in conjunction with solar energy
- Furnaces, hot water heaters, air conditioners and heat pumps
- Electrical junction and circuit breaker boxes and required utility connections
- Stairways, staircases, elevators and dumbwaiters
- Unpainted dry wall and ceilings, including fiberglass insulation cleanup
The NFIP contents coverage will also extend to washers and dryers, and food freezers and the food in them, up to policy limits.
What does flood insurance NOT cover in a basement?
Although they may hold monetary or sentimental value to your client, personal belongings in the basement are not covered. Also, non-necessary improvements including carpeting, finished walls, paint, floors, ceilings, and furniture are not covered.
This article is provided for general informational purposes only and is not intended to provide individualized advice. The article is not a replacement for any NFIP publications. All descriptions, summaries or highlights of coverage are for general informational purposes only and do not amend, alter or modify the actual terms or conditions of any insurance policy. Coverage is governed only by the terms and conditions of the relevant policy.
It’s important for your clients to understand what may be covered before a flooding event occurs. In a time of high stress, the surprise of coverage exclusions can only make things worse. There may be steps your clients can take in advance to help mitigate flood damage to their basement, which may be their best strategy to protect property that is ineligible for coverage.
In our many years of working with insurance agents (and for many of us, working as insurance agents!) we know that setting expectations with clients is key to maintaining long relationships. Sometimes that means clearly outlining the limitations of a policy and discussing up front what a flood insurance policy can and cannot do to help them recover from a disaster.