We’re entering natural disaster season again, and it’s time to be sure there are no gaps that will harm your financial security. Last year’s hurricanes were tragic for many people. This season we’ve already seen flooding and extreme temperatures in many parts of the country.
It’s only a matter of time before a potentially catastrophic event rolls toward each of us. It doesn’t have to be an historic hurricane, flood or wildfire.
You could be at risk from a broken water pipe, a tree falling on your home and many other commonplace events.
You don’t want such short-term events to cause a permanent reduction in your financial security.
Work through this checklist of preparations to take to be sure the worst you’ll experience from such events is some inconvenience.
Prepare your financial emergency kit.
Certain documents are very helpful to recovering from a traumatic event. The faster you can place your hands on these documents, the faster you’ll restore things as they were.
You need access to the latest copies of statements for bank accounts, investment accounts, credit cards, mortgages, and any other debt. You need copies of tax returns.
Of course, you need the policies for homeowner’s, automobile and any other insurance you have.
Then, there are the always-essential documents: your will, trust, power of attorney, health care advance directive and any other estate planning documents.
You want copies readily available to you, and you want the original or copies stored to be safe from catastrophes. Some people use bank safe deposit boxes.
Others have home safes or disaster-proof lock boxes. These days, digital storage is a good option if the storage is safe from disaster. Having digital copies on a hard drive or thumb drive at home isn’t useful if they’re also damaged.
Assess emergency cash reserves. We’d all like 100% of our assets to be working in the markets to increase our net worth, but for emergencies you should have some liquid assets that quickly can be converted to cash.
The amount of cash you should have depends on your situation.
Most advisers recommend three to six months of expenses as emergency reserves.
But you might need more, depending on the extent of the disasters for which you are at risk and how long your insurance coverage might take to begin disbursements. Keep in mind that in a real disaster, you might need more than your daily living expenses. You might need temporary housing and a rental car.
You might need to replace items you use in daily life and household goods. Insurance might eventually reimburse these costs, but first you need the cash to be able to buy them.
Match insurance coverage to your risks. Standard homeowners insurance doesn’t cover flooding. You need to buy flood insurance separately.
A high percentage of people in hurricane-prone areas don’t carry floor insurance. Flood insurance is required only if you have a mortgage and live in a designated high-risk flood zone. It can be expensive, and the lower incidence of hurricanes and floods over the last decade made some complacent.
Flood insurance can be a good idea even if you’re not in a hurricane zone, because a flood from any cause can result in substantial damage in a hurry.
Talk with your insurer or insurance agent about the other limits of your homeowners insurance and risks that aren’t covered. Many people are surprised by what their insurance doesn’t cover but can be covered with an additional rider.
Also, know which costs of an incident aren’t covered.
Does your policy reimburse for damage to household goods based on their current value or their replacement cost?
How much will the policy pay for temporary housing if you’re displaced because of a flood, fire, or other event? How quickly will reimbursements be made?
Document your property. To recover all or most of what you lose in a disaster, document what you own. Insurers have formulas they use to reimburse homeowners for losses of their household goods.
You might be better off proving exactly what you owned, especially if you have high-end electronics, expensive furniture, jewelry, antiques, custom home improvements and other special items.
Ideally you have a list of what you own, including date purchased, cost, and an estimate of the current value. The best evidence is to have receipts of your purchases to prove the details.
Many insurance agents recommend that you have videos or photographs of your home that are date-stamped, so you can prove you owned the items at a particular point in time and they were in good condition.
Having this evidence increases the odds you’ll recover as much as possible.
Also, be sure your policy doesn’t cap your recovery at a low amount.
It costs more, but you’re probably better off if the policy pays replacement cost rather than the value of the items at the time of the loss.
Have a continuity plan. This is critical for businesses, but also important for homeowners.
What will you do if the things you depend on each day aren’t available? You could go days without electricity, running water, natural gas, telephone and other services.
When the electricity in your area is out, that means the pumps at the local gas stations won’t work.
The only gas you’ll have is what’s in your cars and any containers you filled.
Consider what your options would be for food. Keep in mind that roads could be flooded or blocked by fallen trees for some time.
Having cash on hand might be essential. ATMs and credit card processing systems might be out of service for extended periods.
You should be prepared to be self-sufficient for a while.
Most preparedness experts recommend that you be ready to live without outside provision of utilities, food, water and support for three to seven days.
After-event checklist. Part of your preparation is knowing what to do after you suffer a loss. You should, of course, contact your insurer or agent and begin the process of filing a claim.
As soon as you can, take photographs or videos of the damage.
The instinct of most people is to begin moving things around and try to fix what they can.
For insurance purposes, the first step is to take any actions necessary to prevent further immediate loss, and the second step is to document the damage.
The insurance adjuster will provide estimates of the damages and reimbursement.
You can present arguments and information to support higher estimates when you think that’s appropriate.
It’s important not to deposit a check from an insurer or sign an agreement unless you are satisfied with the estimates.
Once you accept payment, you won’t be able to negotiate further unless the insurer stated it wasn’t full payment.
Contact creditors. Many firms provide some kind of grace period to those who suffered catastrophes or have other excuses for late payments.
You could save a lot of money by having late payment fees waived.
