As people living along the Atlantic and Gulf coasts brace for the beginning of hurricane season and residents of the West Coast and Great Plains continue the wildfire watch, extreme weather and other natural disasters remain a consistent part of the daily headlines. As we all know, natural disasters are no respecters of persons: floodwaters inundate the homes of both the economically challenged and the affluent; wildfires consume million-dollar homes and shotgun houses alike. The destruction in “Tornado Alley” affects every part of the socioeconomic spectrum.
Does your financial plan include measures for recovering from a natural disaster? Perhaps you don’t live on the coast and you aren’t worried about hurricanes, but flash-flooding can occur far inland. And what about earthquakes, damaging hail, and tornadoes. Is your risk management program—especially your property insurance coverage—properly coordinated with your overall financial strategy?
Do You Have the Right Insurance?
Of course, during the recovery process is the wrong time to verify insurance coverage. Ensuring the adequacy of your homeowner and other policy provisions shouldn’t wait until the clouds are already gathering. Instead, you should periodically review your coverage and compare it with your current circumstances. Has the increased value of your home created a need for adjusting the amount of your replacement-value coverage? Do you have or want protections for emergency housing costs or loss of personal property (collectibles, art, etc.)? If you live in a flood zone, is your coverage from the National Flood Insurance Program adequate? (Remember, most homeowner policies exclude losses from outside flooding.) Ongoing, systematic review is the best way to keep your risk management program current.
Your Disaster Recovery Plan
Anyone who owns property or has any type of financial assets needs a recovery plan for natural disaster. While none of us can control the weather or the global environment, we can take measures to aid the quickest possible recovery from those cataclysmic events that none of us like to think about.
First, let’s think about what you’ll need as you begin the recovery process. In order to work as efficiently as possible with insurers, law enforcement, public safety officials, federal assistance personnel, and others, here is a list of some of the main documentation you’ll need:
- Birth certificates
- Death certificates, if applicable
- Marriage certificate
- Wills and Powers of Attorney (POAs), including medical POAs
- Social Security cards
- Medical records, including prescriptions
- Insurance policies (life, health, disability, long-term care, auto, homeowner’s, if applicable)
- Checking and savings account information
- Retirement and brokerage account information
- Recent pay stub
- Recent utility bill
- Vehicle titles and/or registration
- Mortgage and/or deed documents
- Safe deposit box information and key
- Credit card information
Keep in mind, this is not an exhaustive list. You may have other documentation particular to your situation that is just as important as anything shown above. The point is, you need to have a collection place for these documents, and it needs to be able to survive a natural disaster. Ideally, you should be able to grab the container with all these papers and carry it with you as you are evacuating to a safe location. It is also possible that some of this information is stored in digital form. If so, are the data backed up to the cloud, a remote server or other device that would survive local flooding, a major earthquake, or a fire? Is the information secured so that only authorized persons can access it? There are a number of cloud backup services that can help you make sure your most critical data are safe. Even if you must pay a small monthly service charge, the peace of mind that comes with knowing your critical documentation is safe and readily accessible is far more valuable.
Who Should I Call First?
Next, let’s discuss which agencies and other entities you should contact as soon as possible. The American Red Cross (www.redcross.org) is always one of the first organizations to respond to any natural disaster, and especially if your home is too damaged to inhabit, contacting them, either at their website or by calling the number of your local chapter, can help you obtain emergency housing and other necessary immediate assistance. If your community has been declared a federal disaster area, the Federal Emergency Management Agency (FEMA; www.fema.gov) can also help with emergency housing and even emergency cash assistance. Such financial assistance may also be obtained through state or local government agencies; it is usually nontaxable.
If possible, you should next secure your property. If authorities allow it, go home and gather any valuables and important documents that are retrievable. If you can, carry out temporary repairs and other measures to prevent further loss or damage. The Red Cross and FEMA may also be able to help you obtain materials to make these repairs. You will need to keep good records; your insurance company will likely reimburse you for any expenses you incur, as long as you can provide proper documentation.
Speaking of insurance companies, you should now notify your claims representative. At this time, you may wish to inquire whether your policy contains provisions for reimbursement of emergency housing costs, food, laundry, and other living expenses. Sometimes, the insurer will issue a check up front; other companies may require you to provide receipts for reimbursement. In either case, it is important for you to keep receipts for your expenses. Some of these reimbursements may be taxable, but proceeds used for repair or replacement are usually not.
Now it’s time to notify your creditors of your situation. If you are unable to live in your house, contact your utility companies and request that they halt billing until their services are available again. Ask other creditors for additional time to pay. In such circumstances, most creditors will work with you, especially if you call them before the payment due date. Prioritize communications with your mortgage holder, your vehicle lien holder (if applicable), and your insurer.
These initial steps will help you begin the process of getting back on your feet.
At Sunpointe Investments, we believe in the wisdom of the proverb, “Forewarned is forearmed.” Smart preparation is a vital key to any financial plan, and readiness for natural disasters is part of that process. If you would like guidance on reviewing your risk management program, your disaster recovery plan, or any other important financial matter, please let us help.
NOTE: Many of the ideas in this article come from “Disaster Recovery: A Guide to Financial Issues,” published with the cooperation of the National Endowment for Financial Education, the American Institute of Certified Public Accountants Foundation, and the American Red Cross, available at http://www.cert-la.com/downloads/education/english/Disaster-Recovery-Guide-AICPA-Red-Cross.pdf
