Disaster-proof your finances
5 tips to help you recover more easily from a flood, fire or other natural disaster
WE’VE ALL SEEN UNSETTLING IMAGES of people fleeing their homes in the wake of natural disasters. Many of us may even know friends or family members who’ve had their lives turned upside down by the force of Mother Nature.
Watching those reports on the news can be disturbing — especially when it’s happening to someone you know or love. It may inspire you to reach for your checkbook to help those affected (see our slideshow below for insights on how to give effectively). And it also can serve as a useful reminder to ask yourself: Would I be prepared if something like that happened here?
While many people do have emergency plans — particularly those in high-risk areas — they’re less likely to be financially ready, says Tony Steuer, author of Get Ready!: A Step-by-Step Guide to Maintaining Your Financial First Aid Kit. Here are five tips that can help you work with your financial advisor to prepare for the potential costs of a natural disaster and recover more quickly should one happen to you.
1. Create a financial first-aid kit. To make it easier for you to cope with financial priorities in the first days and weeks after an emergency, put copies of any physical financial documents you’ll probably need immediately in a waterproof “go-bag,” Steuer says, which you can then store in a secure place. The bag should include financial statements, utility bills and credit card statements if they’re not stored digitally; insurance policy account numbers and agents’ contact information, health insurance cards, medical records, wills (including living wills) and medical powers of attorney. You also can store your documents on an app such as Paperwork that you can easily access in an emergency.
Tip: Consider switching to secure electronic delivery for bank, credit card and other financial statements to avoid having financial records and account numbers get into the wrong hands during a natural disaster. Doing so not only saves paper, but also avoids the situation where, say, in the case of a tornado, personal financial statements might end up blowing around on the street.
Want to help others who have been struck by disaster or misfortune? Ask your financial advisor and a philanthropy specialist the five key questions in this slideshow.
Aid agencies can be overwhelmed by well-meaning people sending what they believe are necessary items. Don’t send physical goods unless they’re specifically requested. Usually money is the most useful gift.
Does the charity make use of its resources efficiently? Vet charities at sites such as Charity Navigator, Center for Disaster Philanthropy and National Voluntary Organizations Active in Disaster.
While there’s a good chance a new agency is legitimate, you might want to find out more. What do you know about the board and staff? Who are some of the founders? Consult with a financial advisor and a philanthropy specialist.
Especially international disasters, the importance of local knowledge is paramount, as responders need the ability to navigate the language, culture, policies and local institutions.
Tax-exempt status can help if you want to receive a deduction on your donation, and can also be a sign that the charity in question is legitimate.
2. Protect and preserve important documents. Store other key papers you’re likely to need at some point, such as recent tax returns, property deeds and brokerage and retirement account information, in a safe-deposit box or safe that can resist fire, water or structural damage to your home. “You also could scan important documents and upload them to a reliable cloud-based storage service like Merrill’s My Documents Vault,” says Thorne James, a Merrill financial advisor and managing director of Merrill Lynch Wealth Management in Raleigh, North Carolina. That way you’d have easy access to them via any device capable of accessing the internet from any location, during or after an emergency.
Tip: Make sure that other family members know the location of documents and how to gain access to them.
3. Evaluate your insurance. Your current policies may not give you adequate protection. “Floods and earthquakes aren’t always covered under traditional homeowners’ policies,” Steuer says. The majority of flood policies are provided by the National Flood Insurance Program, with an average annual premium of about $700. Flood damage to your car — an often overlooked potential risk — can be part of your auto insurance’s optional comprehensive coverage, notes Steuer.
Tip: Whether you rent or own, it’s a good practice to take pictures or a video of your property — inside and out. Also note the make, model, serial number and purchase date of big ticket items such as electronics, artwork or jewelry you may have to leave behind. And be sure to upgrade your insurance whenever you upgrade your home.
4. Establish a source of ready cash. Even with insurance, disaster-related out-of-pocket costs — including unplanned living expenses if you’re displaced for a time — can be high. To bolster your emergency savings, you might talk with your advisor about potentially opening a flexible line of credit such as a home equity line of credit (HELOC) you can tap in the event of an emergency. Or you could consider obtaining a line of credit secured with other assets, such as your investments. “These lines of credit can be a lower-interest cushion that can help prevent your having to dip into retirement and investment accounts,” says Patrick Bitter, credit and banking product executive at Bank of America.
Tip: Consider establishing access to a HELOC before you need it. Another option to consider: Your advisor can provide access to Bank of America to help you set up a line of credit secured by your investments.
5. Share information widely with family members. “In most families, one person manages the majority of financial activities,” Steuer says. “If that person is incapacitated and other family members don’t know what bills have to be paid, or where to locate the checking and savings accounts and other important documents, that’s when things can get even more complicated. Have regular family financial meetings to discuss where stuff is stored, and how your filing system works.”
Tip: Keep a schedule of bill payments in your go-bag so you can avoid late payment fees and interest charges, which can harm your credit score.