How to prepare for natural disasters
Could your finances survive a natural disaster?
It’s an important question to consider, even if you don’t live in an area vulnerable to nature’s quirks. The U.S. experienced a record-breaking number of natural disasters in 2011 with losses at nearly $60 billion, according to the National Climatic Data Center. Thousands of citizens who never dreamed weather-related conditions would impact their lives are now contemplating a different financial future.
“People always think (catastrophes) won’t happen to them,” says Lance Hocutt, a financial adviser for Ameriprise Financial. But if you don’t protect your finances from unexpected blows, “You can end up with literally nothing except the clothes on your back,” he says.
Get a plan
The key to financially surviving a disaster is having a solid financial plan in place before calamity strikes, says Hocutt. A financial plan is a comprehensive strategy based on your current financial position and future financial goals that safeguards your long-term economic interests against life’s surprises.
People often don’t consider that disaster can bring incapacitating injuries or that they’ll be too emotionally devastated to work, says Hocutt. A financial plan operates such that if one source of income is eliminated or interrupted, another steps in to fill the gap. Life, health and disability insurance, as well as estate, investment and retirement planning, are all fundamental components of the plan.
Don’t have a financial plan? At a minimum, review your insurance policies annually to ensure your property is sufficiently covered. Many homeowners neglect to update their policies after making improvements to their property, says Hocutt. This can mean having to absorb a substantial loss when misfortune occurs.
An even bigger financial mistake people make is failing to understand the extent of their insurance coverage. “Most people think hurricanes, tornadoes, flooding and earthquake are covered under their homeowners policies, (but) they are not,” says Frank Darras of DarrasLaw, a California law firm specializing in representing insurance policyholders. “Separate coverage is available and needs to be considered no matter where you live.”
Whether to obtain flood insurance is an especially important consideration. “Just because you haven’t experienced a flood in the past doesn’t mean you won’t in the future,” says a FEMA official via email. “Nearly 20 percent of flood insurance claims come from low- to moderate-risk areas … anyone can be financially vulnerable.”
The federal government provides flood insurance to qualifying individuals. To find a local agent and assess your risk, visit FloodSmart.gov.
In this digital age, there’s no need to lose crucial financial documents to flood, fire or other disasters. Hocutt advises scanning documents such as your will, insurance policies, tax records and bank statements, then uploading them with a reputable cloud storage service. If disaster occurs, essential information will remain intact and accessible.
Digitizing your documents serves another significant purpose: security. Certain disasters, such as hurricanes and tornadoes, can scatter sensitive financial documents for miles, says Hocutt. Having digital documents decreases the risk of your financial information falling into unscrupulous hands.
Creating and storing digital photos or videos of your property is also a fiscally smart move. It provides evidence of the pre-disaster condition of your physical assets, says Darras. He recommends digitally documenting your property every year, inside and out. Include structures such as the garage and attic, and remember all personal possessions including furniture, power tools and heirlooms.
Keep your head
If Mother Nature delivers her worst and your property is damaged or destroyed, you’ll need time to recover from the blow. But as rapidly as possible, recoup and get your financial affairs in order. “Time is an insurance company’s friend,” says Darras. Always keep handy copies of your insurance policies with your agent’s contact information so you can quickly report your losses, he says.
Try not to lose sight of the smaller financial losses, which can quickly add up. Contact utilities providers to confirm you aren’t being billed for interrupted service, says Karen Carlson, director of education at InCharge Debt Solutions, a nonprofit credit counseling agency in Florida. She also recommends contacting creditors to discuss suspending or restructuring payments. “In most cases, (creditors) have relief programs for customers that have been impacted by disaster.”
If the privacy of your financial information has been compromised, ward off identity theft by setting up a fraud alert through a credit bureau, says Carlson.
You can ask for an initial fraud alert, which stays on your credit report for a minimum of 90 days and entitles you to a free credit report from the three credit bureaus, according to the Federal Trade Commission. A fraud alert requires lenders to take extra measures to verify your identity before they open a credit line in your name.
Finally, remember that although you may feel alone when disaster strikes, you aren’t. Organizations such as Equal Justice Works, a 501(c)(3) organization providing free legal services countrywide, are ready to aid those devastated by natural disasters. “Local media (are) good at communicating resources available in your area,” says Carlson.
“Just try to stay aware.”