In the wake of the Hurricane Katrina disaster, flood insurance seems like a no-brainer. However, the flood insurance policies available for purchase, meant to reimburse victims of flood damage for their losses, aren’t as comprehensive as buyers might think.

Flood insurance is two-tiered; coverage for a building structure must be bought separately from contents coverage, which is insurance for the items inside buildings. According to the National Flood Insurance Program, residential premiums for both building and contents coverage can start as low as $119 per year and commercial premiums for both as low as $550 per year.

The residential coverage can pay out up to $250,000 for the building and $100,000 for the contents, while commercial coverage can pay up to $500,000 for each. The catch lies in what is actually covered by a flood insurance policy.

The NFIP defines a flood as a “general and temporary condition of partial or complete inundation of two or more acres of normally dry land area or of two or more properties (at least one of which is your property).”

In other words, if your house is flooding but none of your neighbors’ are, you get no coverage for any of the damage. While this definition of flooding makes it possible for victims of flood damage to receive no aid, the greater concern lies in the policy’s definition of what kind of flood damage the victim may be reimbursed for.

According to the Federal Emergency Management Agency's summary of coverage from the National Flood Insurance Program, a person with both building and contents coverage lacks insurance for large numbers of valuable things, including anything outside of the building (swimming pools, septic systems), vehicles (cars, motorcycles) or any type of financial losses due to business interruption.

Furthermore, the flood policy is not a valued policy, meaning it pays only the replacement cost value or actual cash value of the actual damages, up to the policy limit. Even if your house and its contents are worth more than $350,000 combined, you will not receive more than the maximum $350,000 from your insurance company.

Flood insurance policies might have a lot of loopholes, but there is value in looking into a policy. If the coverage is affordable, it could help recoup some of the losses in the event of a flood.