Weathering the Storms, Financially Speaking

By Cathy Miller, MBA, CFP®, CRPS®, CDFA™

With stories of the many victims of Hurricane Harvey and Hurricane Irma dominating the news, we are reminded of the devastation natural disasters can bring. The loss of life and enormous economic loss are staggering. While we are largely powerless when faced with storms of this magnitude, there are still steps we can take to prepare for the unexpected. While most disaster preparedness focuses on physical survival, there are critical measures we should take to minimize the financial havoc a natural disaster could otherwise bring.

In advance of a natural disaster, take these steps to ensure you are protected and prepared:

Understand your insurance – Do an audit of your coverage at least annually to ensure coverage amounts are adequate and all necessary perils are covered. Be sure building contents, and other structures are covered adequately for replacement cost, and that you obtain a personal articles policy(ies) for any high-value items that would otherwise not be covered (such as jewelry, fine art, antiques, etc.). Pay special attention to coverage for loss of use, since expenses incurred if you are displaced from your home can mount up.

Understand how your deductible works - Hurricane Andrew in 1992 and subsequent hurricanes have caused insurers to take steps to mitigate future losses in hurricane-prone areas. Hurricanes and tropical storms caused $159.1 billion in insured losses between 1994 and 2013, according to the Insurance Services Office. Hurricane and named storm deductibles were introduced as a risk-sharing mechanism by having the policyholder bear more of the risks, without raising overall premiums to unaffordable levels. A hurricane or named storm deductible is applied separately from a standard perils deductible and is typically a higher dollar amount, meaning a policyholder would be responsible for a larger portion of any loss. It can be expressed as a fixed-dollar deductible or, more commonly, as a percentage of the home’s insured value, which can vary from 1% to as high as 10%. Nineteen states, including Georgia, currently have some form of hurricane or named storm deductible in place. (The other states are Alabama, Connecticut, Delaware, Florida, Hawaii, Louisiana, Maine, Maryland, Massachusetts, Mississippi, New Jersey, New York, North Carolina, Pennsylvania, Rhode Island, South Carolina, Texas, Virginia and the District of Columbia) It is imperative to understand if your policy has a separate deductible for a hurricane or named storm.

If you own property that would be subject to a higher deductible, you should work with your advisor to craft a plan to deal with the uncovered portion of a potential loss. Ideally, build additional cash or liquid reserves. Other options can include hardship withdrawals or loan provisions from retirement plans. For example, to assist victims from Hurricane Harvey the IRS has recently approved liberalized withdrawal and loan provisions for most retirement plans. However, normal repayment limitations and tax treatment generally apply, so accessing retirement funds for this purpose should be considered carefully with your advisor.

Make a video – Identifying lost or damaged personal property in a disaster can be difficult. Since debris in a fire or flood may be unidentifiable, can you recall in detail the contents of your china cabinet? Do you have a complete inventory of the clothing in your closet? One solution is to take a video of all contents of your home at least annually and store the video off-site or on a cloud-based site. Be sure to video contents of all drawers, cabinets and closets, too.

Use a fireproof and waterproof safe – Electronic copies of many important documents may suffice, in which case digital copies can be uploaded to a cloud-based site. However, there are documents where original copies are essential (passports, birth certificates, wills, etc.). And, maintaining paper copies as an additional safeguard may be wise. Keeping the originals and backup copies in a safe on-site is a good solution, since immediate access to a bank safe deposit box may not be available in a widespread disaster. But be aware that all fireproof safes are not waterproof. If there is a fire in your home, it is safe to assume that there will eventually be a substantial amount of water as the fire is put out. So it is important for the safe you use to be both fireproof and waterproof. Below is a list of common items you might wish to place in your safe:

Original documents to place in your safe:

Your family's passports and original birth certificates. These can be a hassle to replace and will come in handy to establish your identity for other purposes.

Originals of your important legal documents, including powers of attorney, living wills, health care proxies. In Georgia, for example, originals of wills are required.

Safety deposit box keys if applicable. If you store valuables at the bank, you will want to make sure you can access them in the event of an emergency. 

Original Social Security cards. These can be difficult to replace and may be needed to establish eligibility for aid.

Copies of documents to store electronically and in your safe:

All passwords and log-ins for frequently-used sites. This should include information to access your assets (investments, retirement plans, bank accounts and contact info) and liabilities (account numbers, due dates and contact info).

CDs or an external hard drive containing digital copies of all family photos. It is a good idea to scan all older family photos and keep a digital copy of them as well. Your family memories as preserved in photos are irreplaceable.

Current insurance policies and agent contact information. You will need this information right away if your home suffers damage in a natural disaster.

A list of your family's doctors, prescription medications, and contact information for all pharmacies you use. You may need these to get new supplies of medications you use on a regular basis.

Important papers related to investments, retirement plans, bank accounts, and associated contact information. You may need ready access to funds.

Information on your outstanding debts, due dates, and contact information. It is important to keep tabs on your finances and protect your credit, even if you're displaced by a fire, flood or other disaster.

Previous year’s tax returns. – If financial assistance is needed in the aftermath of a disaster, having easy access to tax records can speed the application process.

Proof of pet ownership. – Pet microchip identification and proof of pet ownership (photo with pet, vet records, etc.). If separated during a disaster, you may need this information in order to be reunited with your furry loved one.

Have all income deposited electronically where possible. – In a widespread disaster, mail may be disrupted. Electronic deposit of income such as wages, pension income, Social Security payments, etc. can ensure continued access to income at a time it is needed most.

If a disaster is approaching, these additional measures can make a difference:

Have adequate cash on hand – In the aftermath of a widespread natural disaster, banks may be closed, ATMs may be out of cash or not have power and credit cards may not work. Cash may be needed for food and shelter, and to pay for essential repairs and emergency tree removal. Recommended reserves might range from $2,000 to as much as $10,000, depending upon the nature of the approaching event.

If you need to evacuate – Take your safe and documents (listed above) with you, along with recommended disaster supplies.

While financial preparedness is important and can ease the burden of recovery, keep in mind that your personal safety and the safety of your loved ones is paramount. Follow all recommended steps to ensure your family’s physical safety first and then move to safeguarding your finances.

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