Disaster Preparedness for your Finances

August 17, 2023

Tips and Tools for Preparing your Finances in Case of a Natural Disaster

We hope disaster never strikes — but we also know nothing is guaranteed. In the case of a natural disaster, it’s always a good idea to be prepared with emergency supplies, important documents, and personal items. But have you thought about preparing your finances? There are several steps you can take now to ensure you’re more prepared in case of an emergency.

What is “Disaster Preparedness”?

Disaster preparedness refers to the proactive measures taken to minimize the risks and impacts of natural or human-made disasters. It involves planning, organizing, and implementing strategies and actions to enhance the ability of individuals, communities, and organizations to respond effectively to emergencies and mitigate potential damage.

Before a Disaster: How to Prepare

Multiple recent studies have shown that Americans are woefully underprepared for disasters and the sudden expenses that often come with them:

Approximately 40% of Americans have no plan for handling an emergency.
Only 16% of Americans have an emergency preparedness kit.
About 55% of Americans worry about an unplanned financial emergency.
Six in 10 Americans would be unable to cover an unexpected $500 expense.
Six in 10 Americans would be unable to cover an unexpected $1,000 expense.

Set Up Direct Deposit

If a disaster does strike, you may not be able to leave your home or travel very far. If you’re in the workforce, contact your employer to set up direct deposit. This will ensure you get paid even if you’re unable to make it to the bank. It also reduces your risk of check fraud or lost checks and gives you immediate access to your money, which may be important during a disaster when many are under financial strain.

Build Up an Emergency Savings Fund

Furloughs and layoffs are common during disasters as companies look for ways to cut costs and stay afloat. It’s important to have a cushion that can supplement your income — or replace it, in the worst-case scenario.

If possible, aim to save six months of income so you can continue to cover essential costs while you search for a new job. If you can only set aside three months of income, that’s still a great start. Even if you never find yourself in a disaster situation, having a solid emergency fund can help cover other unexpected costs.

Revisit Your Budget

During times of hardship, it’s best to examine your budget and see what unnecessary expenses you can cut. This will ensure you have plenty of funds for necessary expenses and that you can cover any unexpected costs with the help of your emergency fund.

Budget categories that you may consider temporarily cutting or reducing during a disaster may include:

Restaurants, coffee shops, bars and cigarettes
Traveling, parking fees and gasoline
Clothing, haircuts and salon services
Entertainment such as concerts and movies
Cable TV or streaming subscription services
Gym memberships
Expensive cell phone data plans
Hobbies

Consider Appropriate Insurance Coverage

The purpose of insurance is to cover you in case anything bad happens. It’s an important part of financial emergency preparedness and you’ll be glad you invested in it if a disaster ever strikes. If you’re a homeowner, you likely already have an insurance policy.

Flood Protection- Many policyholders are surprised to learn that standard homeowners insurance policies don’t contain flood coverage by default. If your area is prone to flooding, look into adding flood protection to your policy.
Renters Insurance– If you’re not a homeowner, you may think you’re covered under your landlord’s homeowners insurance policy. While this is true for the structure of the home, it doesn’t cover your belongings. That’s where renters insurance comes in. At just $20 or less each month, it’s a worthwhile investment.
Auto Insurance– In addition to collision insurance, consider comprehensive car insurance, which will cover your vehicle from the most common natural disasters, including floods, fire, hurricanes and earthquakes. It’ll also cover you in case of smaller-scale damages that are out of your control, like a tree falling on your car.
Life Insurance– Life insurance covers the unlikely occurrence of death via natural disaster. It can help your family pay off debts and cover housing payments and living expenses in the event of your death.

Document Valuables

Create a thorough home inventory that includes everything in your home, from furniture to kitchen appliances to clothing. Even if you don’t have any big-ticket items, the cumulative value of your belongings can add up quickly.

Home insurance is designed to protect not only your physical home structure, but also all of the belongings inside. If you ever need to file a claim, having documentation of your belongings — including photos, descriptions and estimated value — will make the process go more smoothly.

Compile Physical Copies of Important Documents

It’s always good to have both digital and print versions of your important documents. In the event of a natural disaster that causes you to lose power or internet access, you’ll need paper versions of your documents kept safe in a fire-proof, water-proof container.

Locate and print out the following, if applicable:

Insurance policies and professional appraisals
Deeds and ownership forms
Passports, identification cards, birth certificates and adoption papers
Social Security cards
Medical information, including immunization records
Marriage certificate, prenuptial agreements, child support and alimony documents
Power of attorney papers
Living will and last will and testament

After a Disaster: How to Recover

Once the disaster has passed and you begin to resume normal life, there are some immediate action items you’ll want to take care of to best assist your recovery.

Be Wary of Scams

Scammers use disasters as a way to target people, particularly seniors, when they’re already under significant stress and financially vulnerable.

There are many different types of scams involving health products, charity imposters, stocks, taxes, jobs and more.

To spot a scam before it causes financial hardship, keep an eye out for any of the following:

Aggressive donation requests via cash through the mail or wire transfer, especially from unfamiliar organizations
Calls from organizations you’ve never heard of that say “thank you” for a pledge you didn’t make
Organizations that claim they are government-affiliated but have no credentials and no online reviews
Job postings from companies that are anonymous, require upfront payment or don’t have an online presence
Emails from websites with unfamiliar or unregistered domains, or ones with poor grammar or sentence structure
Claims that an expensive product can make you healthy or lose weight from companies that aren’t in the medical or pharmaceutical industry

If you suspect you were the victim of a financial scam during a disaster, call the U.S. Department of Justice’s disaster fraud hotline at 866-720-5721 or submit a complaint online.

Contact Your Employer

After a major crisis, it’s common for employers to allow workers a bit of time to regroup and get their affairs in order. If the disaster has caused you to miss work, ask your boss how much sick leave or paid time off you have accrued. If a disaster has made it dangerous to return to work, or if working conditions are clearly unsafe, ask if you are able to work remotely. If not, you may be protected under the National Labor Relations Board and the Occupational Safety and Health Administration.

File Necessary Insurance Claims

In the wake of a natural disaster, you should assess any damages. If a disaster event caused damage to your home, car or belongings, do not throw anything away. Take photos of the damage and keep them on file for the claim and inspection. If there are immediate repairs required for the safety and livability of your home, take care of those right away.

You then have a year following the disaster to file a claim, following these steps:

Call your insurer– Determine which damages are covered by your policy, how long you have to file the claim, how long it will take for processing and if you’ll need to get an estimate from a roofing company or appraiser.
Obtain a claim reference number from your insurer– This will be useful when filling out forms sent to you by your insurance company.
Schedule an insurance inspector visit– Compile a list of damages to give to the inspector so he or she can determine what will be covered. This is where having a home inventory comes in handy.
Receive your reimbursement– Insurance companies will either reimburse you for the original cost of your belongings or the depreciated cost.
Review your reimbursement– If you feel it is inaccurate or incomplete, you can schedule a second inspection. If you find any new damages, make sure to include these here.

If your damages aren’t covered by insurance, you may be eligible for a disaster relief program.

Check Assistance Eligibility

Many homeowners are eligible for assistance from FEMA if they are “in a declared area whose essential property has been damaged or destroyed and whose losses are not covered by insurance.”

You may also qualify for local disaster assistance. Google your city + “disaster relief” to find local organizations that may be able to help.

Prepare for Future Disasters

If you come to realize after a disaster passes that you had not set yourself up in the most optimal way, use the situation as a learning experience. Take note of things you could have done that would have made your recovery process smoother. While you would never hope to encounter another crisis, it may be easier the second time around with better preparation.

Here are some action items to consider:

Invest in home improvements to bolster safety.
Revisit your insurance coverage.
Ensure your financial documents are secure.
Up your emergency savings fund.

Disaster recovery takes time and patience, and everyone’s timeline looks different. Remember that you’re not alone and that there are resources available to aid those that need it the most.