Your Natural Disaster Financial Preparation Plan

September 2, 2019


Over Labor Day weekend, we witnessed the massive and fast growth of Hurricane Dorian. What was once a Tropical Storm, immediately grew to a Category 5 with over 180 miles an hour winds.  


With some households grilling on their patios taking advantage of the last few summer weekends, others were prepping for the fast-approaching storm, natural disaster preparation.  


Such natural disasters or hurricanes are situations no one hopes to find themselves in. Such storms, leave millions of people homeless and stranded after witnessing their homes being destroyed. 


Whether winds or floods damage these homes, it raises an essential question in household finance, “How can families financially prepare and protect themselves from natural disasters?”


In this article, you will discover:

  • Why Insurance May Not Cover Your Losses

  • How to Avoid Long-Term Decline in Financial Health

  • Understanding the Claims Process

  • Make Your Pre-Disaster Financial Checklist


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Your first reaction may be food prep, water storage, and batteries. While having these items will benefit you greatly during trying times, we will look at several strategies to financially help you weather the storm. Pun intended.  Here are your tips towards a natural disaster financial recovery plan.


Due to the lack of savings in household bank accounts, the world is witnessing increased activity in GoFundMe accounts. Another organization, Global Giving, sets up donation pages to provide relief to victims. While numerous charity organizations are one cause, the other reason is the inability to save money to temporary get out of tight situations properly. 


Many families will rely on credit. “On average, there is a temporary $800 (22%) increase in credit card debt after Katrina for the most flooded group, relative to the non-flooded group.” according to the Federal Reserve Bank of Cleveland.


A longer-lasting impact is one’s drop in credit score.  Jacob Passy,, writes, “The negative impacts of natural disasters run the gamut from poor credit scores and debt collections to home foreclosures.”


This month, the Urban Institute released a report “Disasters lead to broad, and often substantial, negative impacts on financial health. We find evidence of negative impacts across most measures of financial health, including credit scores, debt in collections, bankruptcy, credit card debt, and mortgage delinquency and foreclosures.” 


Why Insurance May Not Cover Your Losses

Do you have full coverage on your automobile? Insurance may not cover the total replacement of a lost, severely damaged truck, car, RV, etc.  


Having a damaged car could have you reaching into your bank account to either include the losses or replacing the auto. What about the deductible? It amazes me how many clients do not know their deductible amount. 


When you file your insurance claim, before the insurance company cuts a check, you will be required to pay a deductible. This amount ranges from $250, in most instances, to $1,000 or more. 


Take a few minutes to see how much you will need to pay before the insurance company cutting a check. 


What about flooding? While some policies may cover water overflow from plumbing, it may not cover flooding, landslide, mudslide, or sinkholes. It is recommended to review your homeowner’s policy carefully for a complete list of perils that may be excluded.


There may be some relief in-home repair or property replacement with the FEMA Individuals and Households Program. To learn about eligibility rules, read this: FEMA Fact Sheet.


Perhaps you do not own but rent your home instead. What is the deductible on your renter’s insurance? Do you have the right coverage to replace your possessions? You might be surprised to learn that when you shopped for your renter’s insurance, you were more concerned about the monthly expense than the actual coverage itself. 


Having minimal coverage for your household items may hinder your ability to recoup any losses. In the event your rental apartment or condo has a fire, the owner's insurance will only replace the cost to rebuild. You will be responsible for your personal property. 


If you elected for the $30,000 coverage but have $70,000 worth of personal property, you have a $40,000 shortage in replacing it. 


It is recommended to create a home inventory list. By creating a detailed list of your belongings, you can itemize it by room or category. Be sure to provide your best-estimated value for each item. I highly encourage you to add high-quality pictures to the list so you can prove the condition of your belongings before such events.


To learn more about Renters Insurance, be sure to review The Renters Insurance Guide.


How to Avoid Long-Term Decline in Financial Health

Natural disasters can cause numerous types of financial distress from credit card debt to bankruptcy. A study by the Board of Governors of the Federal Reserve System reported that “over 40 percent of Americans cannot cover a $400 unplanned expense”.


First, while most financial counselors and advisors recommend having $1,000 in your emergency fund, if you live in a natural disaster-prone area where it is common to have hurricanes, tornadoes, or flooding, I recommend saving 3-6 months of living expenses. 


With hurricane season coming up this summer, better start saving. 


Such disasters may cause you to evacuate the area, and if you do not live close to relatives, you may be paying surging hotel rates and increasing fuel prices. Also, food and water is usually another scarcity. Determine what it would cost if you needed to live in a hotel for approximately two weeks. It is likely more than you think. 


Secondly, review your insurance policies to become familiar with the coverage and its deductible. Do you have this amount readily available in the event of something drastic happening?


We’ve already learned that disasters may lead to serious financial consequences and your insurance company will not pay their share until you pay the deductible.


Recommended Article: How Life Insurance Can Save Your Family


Correctly prep your home with food and water in the event you get stranded. When Hurricane Katrina hit the gulf coast, my parents were in Mississippi at the time and were forced to live two weeks without running water. They lived 3 hours north of the gulf and still experienced this extreme event.


Fortunately, my mother had, but they were forced to live out of their RV temporarily to avoid heat strokes as the climbing temperatures became an issue. At the same time, the coastal states were experiencing fuel shortages, so rationing was serious business.


Understanding the Claims Process

After a disaster, your first goal is to return to life as usual. Responding to a normal life may not be as easy as it seems. From health to safety issues, getting back to your property may take longer than you imagined.


However, depending on the length of time it takes to have an adjuster inspect the damage(s) for repair, you may receive an initial check. The initial payment isn’t necessarily final but helps to pay for expenses along the way.


If you accept an on-the-spot settlement and you accept the payment, you have the right to reopen the claim to potentially receive additional payments if warranted.


If you have a mortgage, your lender may receive payments from the insurance company. Once again, be sure to review your policy and learn what conditions are established. 


To learn more about the Insurance Claims Payment Process, the Insurance Information Institute is a great resource platform to become better educated.


Make Your Pre-Disaster Financial Checklist


Cash is king. We often forget this, but during bad economic times or disasters when cities experience power outages, cash is king. Have small and large bills readily available and in a secure place until you need it. 


Next, put all necessary documentation such as checkbooks, account numbers, and key phone numbers in fire/water-proof containers. This will limit any potential damages to include being readily accessible when you need it. 


Final Thoughts


Like preparing your home with food and water for natural disasters, your finances need to be in order as well. By following these key points above, it will help to guide you in the event you battle tough circumstances. 


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