How to prepare your finances for a natural disaster

6 min read

 While you can’t always predict how much damage a natural disaster will cause, but you can ensure that you’re financially prepared in the event of an emergency. Unfortunately, it seems many Americans aren’t doing this.

According to a survey from The Weather Company, 40% of Americans have no plans on how to handle emergency and a mere 16% have a preparedness kit ready in case of a severe weather event.

In addition to the lack of physical preparedness, there’s a gap in financial preparedness, too. A shocking four in 10 adults say they would be unable to cover an unexpected $400 emergency expense or would borrow or sell something to do so.

“The expression, ‘The time to repair the roof is when the sun is shining’ speaks to the importance of developing a financial plan to deal with natural disasters before they take place rather than after the fact,” says Kurt J. Rossi, CEO of Independent Wealth Management in Wall, NJ. 

Whether you live in an area that’s affected by earthquakes, wildfires, tornadoes or hurricanes, it is crucial to have a plan and enough savings in place to recover and rebuild if necessary.

Build an emergency fund 

Being financially prepared for unexpected costs is critical, especially in the wake of a natural disaster. But according to a study by Bankrate, nearly three in 10 adults have no emergency savings whatsoever.

A good rule of thumb is to try to save $1,000 immediately, then build up to having at least three to six months’ worth of your current expenses saved up. A savings account with a high APY and low minimum balance requirements, such as those offered by American Express Bank, can help with these goals. Just be sure to designate this account specifically for emergencies and sign up for automatic deposits. You may also want to turn down any debit cards that come with it to keep you from spending those rainy day funds

You can also build up your your emergency fund with:

  • Short-term investments, sometimes called marketable securities or temporary investments, which allow immediate access to cash but earn lower interest. Examples of short-term investments include CDs, Treasury securities, bond funds, municipal bonds and money market accounts.
  • Long-term funds which have a lower wait period for cash but earn higher interest. Examples include stocks and index funds. This type of fund is a good idea as long as you have a short-term emergency fund to cover your expenses in the meantime.

Also consider creating a smaller cash fund to have on hand in case power is cut off and bank services are inaccessible. Create a cash fund to cover expenses for up to three days. Consider the fact that you could be without your bank account or even a paycheck for quite a while if the disaster is bad enough.

Budget for repairs to strengthen your home

Do you live in an older home or a home that’s not appropriately equipped to withstand natural disasters? You may need to do additional repairs and/or updates so your home can withstand these events. 

If you’re unsure of your home’s condition, consider getting an inspection of your property to pinpoint any problem areas. Both a home inspection and a roof inspection would be smart. Once these are complete, focus on the safety-related repairs first, and leave more aesthetic or surface-level ones until you have the cash.

Review your insurance policies 

Natural disasters resulted in losses of roughly $52 billion in the United States in 2018 alone. Wildfires, heat and drought led the pack ($18 billion), followed by tropical cyclones ($15.6 billion), severe thunderstorms ($14.1 billion), winter storms and floods ($4.2 billion), according to the Insurance Information Institute.

Check your insurance policies to determine how you’re covered by insurance, primarily to make sure there aren’t any gaps in disaster coverage. Most homeownership policies include damage related to fire but don’t cover damage due to floods or earthquakes.

Rossi says that being proactive is critical. “As you acquire assets and build your net worth over time, it is important to protect these assets,” he says. “Property and casualty insurance is a critical part of proper planning. From reviewing home and auto insurance coverage to umbrella insurance and business coverage, understanding the extent of your insurance and their limitations is important — before the unexpected occurs.”

Here are some key natural disaster insurance facts you may want to consider prior to purchasing a particular type of insurance.


  • Most homeowners insurance policies don’t cover flood insurance. You have to buy a separate policy. 
  • You may be required to get flood insurance if you’re in a flood-prone area. 
  • Thirteen million Americans live in a flood prone area, flood insurance is a good idea even if you aren’t required to get it. 
  • You might be at-risk even if you don’t think you are. People outside of high-risk flood zones file more than 20% of all NFIP claims and receive one-third of federal disaster assistance for flooding. 
  • Flood insurance requires a 30-day waiting period before going to effect, so be sure to get your plan before hurricane season hits.


  • Earthquake insurance isn’t normally included in homeowners policy and isn’t required by law.
  • You’ll need to add a policy endorsement or separate policy if you decide you need earthquake insurance.
  • Consider getting earthquake insurance if you live in an area prone to seismic activity.
  • Earthquake insurance covers any damage from an earthquake (except fire).


  • Homeowners insurance typically covers wind damage but there are some exceptions.
  • Some states have homeowners insurance policies that won’t pay for windstorm damage. It likely won’t cover damage from a tornado or hurricane if your policy doesn’t cover cover windstorm damage.
  • If you live in one of these states and want coverage, buy a separate windstorm insurance policy.


  • Damage from wildfire or fire in general is usually covered in a homeowners policy.
  • However, coverage may vary by geographic location and by policy. 
  • You might find that some insurers do not sell homeowners policies in areas where wildfires are common.
  • Dwelling, personal property, additional living expenses and landscaping coverage are typically covered within your homeowners insurance policy. Check your individual policy for details.


  • Most homeowner’s policies in hurricane-prone areas cover or require hurricane insurance.
  • Homeowners insurance policies in some hurricane-prone states will partially or completely exclude wind and flood-related damages.
  • You may find that If your policy does offer coverage for wind damage, it might include a separate hurricane deductible which could be higher than your regular deductible.
  • Flood exclusions on regular insurance policies as a result of a hurricane still apply.

Rossi says it’s common for policyholders cut corners and opt for cheaper insurance that has gaps in coverage and realize they lack the coverage they need. Consider speaking to a specialist in this area to review your current coverage. “Be sure to make an accurate apple-to-apple comparison of coverage, deductibles and exclusions before changing providers,” he says. “Remember, cash reserves alone will most likely be unable to cover sizable losses that can be realized in a natural disaster.”

Create an emergency document kit 

Figure out what you might want in an emergency kit to help you stay prepared in the event that you have little time to get organized, need to flee or are unable to stay in your home.

Organize a disaster-proof box (that’s water and fireproof) and which contains copies of important documents you might need during and after a disaster. Documents could include: 

  • Insurance policies from your insurance company and/or insurance agent
  • Health insurance information from your health insurance company
  • Deeds and recorded real estate documents, including appraisals from the title company
  • Mortgage information from your lender or financial company
  • Lease information from your landlord
  • Living wills and advance directives from your attorney
  • Any investment and account information from your bank or investment company
  • Driver’s license information and auto title from the secretary of your state or the Department of Motor Vehicles
  • Birth certificate and Social Security card from Vital Statistics and the Social Security Administration
  • Other important documents you may need down the road, such as tax returns, contracts, alimony or divorce decrees

Determine how much it would cost to replace these personal documents and then save that amount of money in a secure place in your home. Keep copies of all important documents in a waterproof and fireproof box. 

FEMA suggests storing electronic copies of important documents in a password-protected format on a removable flash or external hard drive in your fireproof and waterproof box or safe.

Take a look at FEMA’s Emergency Financial First Aid Kit, which also includes a printable checklist of all the important documents to gather for your emergency box. Consider storing all original copies of important documents in a place more protected by disaster like a safety deposit at a bank or another secure offsite storage facility.

Bottom line

The most critical step you can take is to be financially prepared when disaster strikes and sudden unexpected costs stare you right in the face. Budget for repairs to strengthen your home or fix parts of your home that are weak in a natural disaster.

Review your insurance policies and whether you have the right coverage for your needs and create an emergency document kit that will fulfill your needs during and after a disaster. 

It’s also critically important to thoroughly document your losses if the unthinkable does occur. As Rossi says: “Remember, you must be able to prove and substantiate the fair market value of your property before and after the loss using appraisals, receipts and any additional supporting documentation. Also, consider taking numerous pictures as evidence for your losses before the loss occurs. Bottom line: The more evidence supporting the valuation of your assets and damage incurred, the better.”