Most know it’s important to prepare for a natural disaster. But fewer realize that in addition to stockpiling flashlights, bottled water, and emergency medical supplies, they also need to be financially prepared. These tips can help.
1. Build an emergency fund.
Maintain at least three to six months’ worth of living expenses in a liquid account that’s easily accessible. In an emergency, this can help cover short-term expenses until you’re able to access insurance payouts and other less-liquid funds.
2. Safeguard critical documents.
In an emergency, you may need to leave your home quickly. Your priority will probably be to ensure your loved ones and sentimental possessions make it out safely, and you may not have time to track down important personal and financial documents. It’s wise to make a plan for how to access what you’ll need.
Start by collecting, copying, and storing the following records:
• Driver’s licenses
• Birth certificates
• Passports
• Social Security cards
• Marriage and divorce papers
• Home deeds and titles
• Vehicle registrations and titles
• A room-by-room inventory of your possessions
Keep these in a bank safety deposit box or a waterproof, fireproof storage box that’s easy to access in a hurry. It’s also wise to save copies at a different location, such as in cloud storage, on an external hard drive, or with a relative or friend.
It’s also important to ensure you can access your financial records in an emergency, including investment accounts, payroll files, insurance documents, estate planning records, and income tax info.
3. Keep some cash on hand.
In a disaster, you may not be able to access your bank or an ATM. It’s wise to keep some cash on hand to pay for necessary expenses, such as food, lodging, gas, etc. until you’re able to access your accounts.
4. Review your insurance policies.
Take time to make sure you have adequate coverage in place. Consider the following:
• Homeowners insurance — It’s important to note there are two types of homeowners policies: those that cover the cost to rebuild or replace your home, known as the replacement cost, and those that only cover the current value of your home, known as actual cash value. Be sure the type of policy you have continues to meet your needs. Also, be aware of any limits or gaps in your homeowners coverage that you may need to fill.
• Renters insurance — If you rent, make sure you have adequate renters insurance coverage to cover the cost of replacing your personal possessions.
• Flood insurance — Most standard insurance policies don’t cover damage from floods. If you live in a flood-prone area, you may need to add flood insurance to your existing coverage.
• Comprehensive coverage — This can help pay for losses caused by flooding and other natural disasters. This is in addition to the liability coverage most car owners must carry.
5. Don’t fall for scammers.
Unfortunately, scammers often use natural disasters as a way to target distressed victims. Be wary of any contractors selling repairs door-to-door, especially if they promise a discount for up-front payment. Remember that no government aid program or benefits department will charge you an up-front fee to receive a service or benefit. And keep in mind that insurance agents will never sell you a policy to cover damages after a natural disaster occurs. If someone offers you insurance to help pay for your damages, it’s likely a scam.
Katie Stephenson, JD, CFP, is a Private Wealth Manager and Partner with Creative Planning. Creative Planning is one of the nation’s largest registered investment advisory firms providing comprehensive wealth management services to ensure all elements of a client’s financial life are working together, including investments, taxes, estate planning, and risk management. For more information or to request a free, no-obligation consultation, visit CreativePlanning.com.
