Natural disasters, unfortunately, are becoming a way of life for many Americans. In 2020 alone, there have been more than 8,400 fires in California. This year’s hurricane season has also seen a record number of named storms. The danger of these disasters cannot be understated. Sometimes bad stuff happens. And it’s important to make sure that the fallout from these natural disasters doesn’t turn into a financial disaster for you and your family.
Whether a wildfire, hurricane or other type of disaster has roared through your life, the process of rebuilding will take time. In addition to time, you’ll also need to find the funds to restore your life to a new normal.
Let’s take a closer look at some of the places that you can find cash after a disaster.
Your insurance policy
If you are a homeowner who was dealt a devastating blow from Mother Nature, you should talk to your insurance company about your coverages as soon as possible, advises Wendy Terrill, a retirement planning counselor at Assurance & Guarantee in Burlington, North Carolina.
The quicker you file a claim, the better. And it’s important to have the needed coverages depending on where you live, such as hurricane or flood insurance if you live along the coast.
“Always be sure to know the extent of your policies and what they do and don’t cover,” Terrill says. “Be aware, there can be time limits on how long you have to file, so it’s important to act quickly when filing a claim.”
In some cases, Terrill adds, it’s prudent to get a second opinion when totaling up the damage.
“Make sure to consult your own qualified public adjuster, not the insurance company’s adjuster, as well as an attorney,” Terrill says. “Not only can this expedite the process, it will also help protect you. Filing insurance claims can help cover costs and shore up cash savings for other things that aren’t covered by insurance.”
Family and friends
When disaster strikes, often the most willing people to lend a hand are family and friends, says Justin Nabity, a wealth management advisor at Physicians Thrive in Omaha, Nebraska. “One way to get the finances you need would be to ask your friends or family for a loan,” Nabity says.
Nabity recommends, however, that you should discuss a doable plan to pay them back.
“The word ‘loan’ is key here,” Nabity says. “Make it clear to them that you intend to pay them back the money in full with interest over a period of time. Your loved ones care for you, and more often than not, they would love to help out someone they love whenever they can. Just don’t treat the loan like a handout.
One plus of enlisting the help of friends and family is you can access funding as soon as possible. You could even request that they send the money via a digital payment network like Zelle or Venmo directly to your bank account so that you can get your rebuilding efforts underway quickly.
The federal government
When disaster strikes, the federal government has resources available to help you. The type of assistance that you may qualify for will depend on your unique situation. Here is a better look at the assistance you could receive:
FEMA: Federal Emergency Management Agency
FEMA offers a variety of programs to support disaster survivors. As soon as the area is safe, FEMA will arrive to start helping impacted individuals survive the fallout of a natural disaster.
In addition to many on-the-ground programs to provide food and shelter as well as cover expenses like moving, storage and clean-up, you could receive FEMA unemployment assistance. Typically, any unemployment benefits related to a disaster will be paid for up to 26 weeks.
If you want to apply for FEMA assistance or explore your options, head to the FEMA Disaster Recovery Center (DRC). These mobile offices are set up after a disaster to help the affected residents navigate the crisis. For complete information, go to FEMA’s website at www.fema.gov/individual-disaster-assistance.
Small Business Administration Disaster Assistance
As a business owner that was affected by a declared disaster, you can access resources provided by the Small Business Administration (SBA). You will find four types of loans available after a disaster: physical damage loans; mitigation assistance; economic injury disaster loans; and military reservist loans. These loans cover things like home repairs, a business owner’s operating expenses and other financial hardships you might suffer.
If you have a small business affected by a declared disaster, you can take advantage of these loan opportunities to help you weather any financial storm.
IRS: Internal Revenue Service Assistant
The IRS, better known for tax collection, is usually not associated with offering a helping hand. But the IRS may be able to help to alleviate some pressing bills. For example, you may receive an extension on your tax payment deadline. That could be a big help if you are running low on funds while rebuilding.
DAIP: Disaster Assistance Improvement Program
DIAP is a lesser-known federal entity that can help you get back on your feet following a disaster. The goal of DIAP is to help you find the resources you need more easily.
If you are tired of reading through an alphabet soup of agency programs to find the pertinent information, then head to DIAP’s Find Assistance page. You can enter your information on the site and receive a unique list of resources and assistance programs that could help you — and save you a lot of time.
Your life insurance policy
If you have a cash value life insurance policy, then now may be the time to borrow from it if you have enough cash built up on the policy. (You can’t borrow from a term life policy, as it only pays out upon death.) You could cover necessary rebuilding expenses with the cash that you withdraw from your cash value life policy. And there’s no application required to gain use of your money.
If you don’t pay back the money you took from your life insurance policy, however, it will reduce the value of your death benefit, notes Sean Fox, president of Freedom Debt Relief. “Paying the money back is not required, but any amount not paid back will be deducted from whatever goes to beneficiaries,” Fox says. So, keep that in mind as you move forward.
CDs, savings bonds and mutual funds
If you have money tucked away in a CD, mutual fund or savings bonds, you could pull cash out now. With the current pandemic, many banks are already giving their customers a break on penalty fees. With that added assistance, you may not take a hit when you pull out these funds early.
Talk to a bank representative to better understand your options if you need to pull money out of these savings vehicles.
529 college savings
If you have contributed money to a 529 college savings plan for your child, then you could tap into those savings. However, you’ll have to pay a 10 percent penalty on the earning portion of your account for any withdrawals. With that, a 529 withdrawal should be a last resort.
In addition to the 10 percent penalty, you’ll have to pay state and federal income tax on these withdrawals.
An easy place to access needed cash is in retirement accounts, such as your 401(k), notes certified financial planner Kyle Eaton. “401(k) plans allow participants to take out loans,” Eaton explains. The maximum amount you can borrow from your plan is 50 percent of your vested balance or $50,000, whichever is less, according to the IRS.
For instance, if your 401(k) had a (vested) balance of $60,000, the maximum loan that you could take is $30,000,” Eaton says.
If you are suffering a financial hardship from COVID-19 on top of a natural disaster, then you may have another option for funding. “When the federal government declares a Federal Disaster Area, many times, taxpayers living in these areas are provided tax relief by the IRS,” Eaton says.”The CARES Act provides a similar benefit to those individuals impacted by the Coronavirus. Starting January 1, 2020, if you are 59 ½ or younger, you can take up to $100,000 (in total) per person from IRA or employer-sponsored retirement accounts through the end of 2020. Ordinarily, any distributions prior to the age of 59 ½ incur a 10 percent penalty in addition to owing income tax on the distribution. However, the CARES Act temporarily waives that 10 percent for qualifying individuals.”
The major drawback of these distributions is that you will have to repay the account that you took the funds from. Additionally, it could delay your retirement by derailing your savings goals.
Non-government organizations (NGOs)
A final place to seek financial assistance after a natural disaster are the NGOs, often non-profit organizations, that flock to the area to provide help. Many are able to provide the money and resources you need to rebuild.
Take some time to research the NGOs that are offering assistance in your area. You might be surprised to find a helping hand just around the corner.
No one wants to experience a natural disaster. But luckily, there’s a good chance you won’t have to rebuild alone. There are many organizations and individuals that want to help you get back on your feet and create a new normal. When a helping hand reaches out, accept graciously as you make progress towards stability.