Hurricane season is right around the corner. Officially spanning from June 1 to November 30, with peak weather events occurring from mid-August to late October, the havoc wreaked from last year’s hurricane season and other climate disasters totaled $45 billion.*
With the crisis our world currently faces, this isn’t the time to leave anything to chance. Disaster prepping your home is critical, but many homeowners stop short of doing the same for their finances.
Financially prepare for any natural disaster with 9 important tips
Some of the financial effects of a natural disaster can include:
- Bills for a family’s medical care.
- Cost of temporary shelter if a home is damaged.
- Fees for temporary pet care or medical attention.
- Food/transport expenses during evacuation.
- Insurance deductible needed to receive payout.
- Job loss or furlough in a disaster-struck area.
- Repairs that aren’t covered by homeowner’s insurance.
To prepare for the potential financial pitfalls of hurricane season, here’s where to begin:
1. Create an emergency fund.
If you don’t have one, start setting aside extra money by automatically depositing it into an emergency savings account each month. If you do have an emergency fund that you’re contributing to, reassess your progress and begin saving more, if needed.
Socking away 3 to 6 months’ savings is the general industry standard for financial emergencies.
Online finance calculators can help you determine the right amount based on your income and living expenses. Recent data from the Federal Reserve Bank of St. Louis show that, during our current pandemic, savings have actually increased.
As a note, ATMs might not work in areas where power is out, so it’s smart to withdraw and save some cash.
2. Get quotes for added insurance.
If you’re a homeowner, then you probably have homeowner’s insurance. For many homeowners, it can come as a rude awakening to find that some natural events aren’t covered.
Lack of coverage for a common form of weather damage — flooding — is one of the lapses a homeowner is most likely to run into.
Purchasing additional flood insurance is a good idea in high-risk zones, called Special Flood Hazard Areas or SFHAs; some mortgage lenders may require it in these regions. Landslides, earthquakes, and hurricane winds may also not be covered.
Compare at least three quotes and review each policy as not all insurers provide the same type of hazard coverage.
3. Learn how to file insurance claims.
Storms roll in fast, and disaster damage happens in minutes. If evacuation is required, you might have to leave your home with only a few belongings. Suffice it to say, you won’t have time to reread your insurance policy and research how to file a claim.
Gather and save insurance company phone numbers and policy numbers beforehand. Print a copy of this document for your “go bag” and also save it where it can be accessed online.
And, you’ll want to know your insurance company’s claims handling process. Expect an insurance claims department to be busy once a disaster strikes. There may also be a time limit to file, so it’s important to act quickly. Documenting and photographing all damage, tracking expenses, and filing promptly can prevent delays and may expedite how soon an assessor visits.
There’s also your insurance deductible to consider: the amount you’ll have to pay before receiving your claim payout, usually ranging from $500 to $1,500. This money can come from your emergency savings.
4. Organize your documents.
Essential documents still need a hard copy these days. Your insurance policy, Social Security card, birth certificate, bank account information, passport, immunization records, mortgage loan paperwork, and will are some of them.
Scan these files and store them in a cloud service online. Secure all original paper copies in a waterproof/fireproof safe or keep them off-site in a safety deposit box at the bank.
You can also pack hard copies of other important records in a go-bag to prevent them from being destroyed. Paper tax returns, medical documents, inventory of valuables, home and appliance warranties, pay stubs, retirement account balances, and emergency contact info are all worth keeping.
Many of these documents may be required to pay bills, file claims, or get medical coverage for members of your family.
5. Minimize where you can.
Now may be the time to see what you can live without. Cutting out unused streaming services and reducing cell phone data plans are simple ways to decrease household expenses and help you start saving.
Living a little more minimally makes it easier to set and achieve financial goals and pay off debt and credit card interest.
As an example, you might live in a home that’s outgrown your lifestyle. Renting out a room or selling and downsizing could put hundreds of dollars back into your budget. Some of this money can go into your emergency fund.
Downsizing also gives you the chance to sell furniture, cars, and other large items you no longer need.
6. Pay down debt and improve credit.
The scenario you’re preparing for is temporary or permanent job loss following a natural disaster. So, it makes sense to decrease your overhead as much as possible. Look into lowering your monthly mortgage payment (more on that in tip #8). Assess your debt levels and consider using the Snowball paydown method.
Decreasing debt from sources like car loans and credit cards improves your credit score automatically.
Having great credit also makes it easier to negotiate with creditors in an emergency situation where bills can’t be paid. Good credit — with 30 percent of your credit score based on debts owed — could help you leverage a better rate on a personal or renovation loan if home repairs are needed.
Pre-disaster is also an ideal time to manage how much it costs you to use credit. If you’re in good standing, call your credit card provider(s) and ask for a higher limit, offering you extra cushion in an emergency.
Stay in touch. Here’s where you can find the up-to-the-minute info every homeowner needs.
7. Research post-disaster benefits and passive income.
Hold out hope but prepare for the worst. With this in mind, it can help to familiarize yourself with resources for financial aid in the unfortunate event that total loss happens. Federal government benefits may be available, along with support for veterans.
Likewise, your employer might have an emergency plan in place and may continue to pay your salary for a set amount of time after a disaster.
Many financial preppers also recommend exploring a side hustle or other passive income stream to diversify your earnings. If a job is lost, having another source of income, no matter how small, could keep you from immediately depleting your savings.
A cash-out refinance, HELOC (home equity line of credit), 401(k), and cash out of a universal life insurance policy can also be used for funds in an emergency. Consult your CPA or financial planner to weigh the costs and tax repercussions.
8. Request a mortgage review.
As your life changes, so do your home financing needs. If you haven’t met with your loan officer recently, your mortgage — and your finances — could probably benefit from a tune-up.
You might be asked about your big picture goals, recent changes in income, appreciation in your home’s value, and what you’d like to get out of your mortgage: i.e., a shorter payoff term, a cheaper monthly payment, debt consolidation at a lower rate, or a cash-out option to access accumulated equity.
To prepare for a natural disaster, it could help to reduce your interest rate and decrease your monthly payment. Right now, refinance demand is expectedly high; mortgage rates have recently hit a record bottom.
Making sure your mortgage payment is as affordable as possible can keep monthly bills manageable and free up extra funds for emergency savings.
9. Take out life insurance on the primary earner.
Losing a partner in the event of a disaster may be difficult to discuss, but it’s something we all need to plan for. Personal finance enthusiasts agree that one of the most effective ways to prepare for the unforeseen is by purchasing life insurance for your family’s main breadwinner.
Life insurance for both partners is ideal, if possible.
Typically, life insurance is inexpensive when you’re younger (and potentially healthier) and becomes more expensive with age. Many workplace healthcare plans provide the option for life insurance coverage, with a policy size that might cover a mortgage balance or higher.
For a standard 20-year policy, life insurance may start at $126 a month on average.
What to do when disaster strikes: Call your loan officer
At Cornerstone, we’re family. This means that, not only are we invested in your well-being, but we’ll do whatever it takes to come up with helpful solutions that ensure you, your family, and your finances stay safe. Click here to connect with a local loan officer via app, video, phone, or email.
*“Billion-Dollar Weather and Climate Disasters: Overview.” NOAA, 2020.
For educational purposes only. Please contact your qualified professional for specific guidance.
Furthermore, sources deemed reliable but not guaranteed.