The ESG Initiative at the Wharton School

News

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

Outlet: CNBC

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.

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.

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.)