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Don’t Wait Until Disaster Strikes

Financial preparedness in the face of Mother Nature

“Remember: when disaster strikes, the time to prepare has passed.” –Steven Cyros

The United States experienced a historic year of weather disasters in 2017, with 16 separate billion-dollar disasters causing in excess of $300 billion worth of damage. Mother Nature hit a bit closer to home for me this year with the September 14th arrival of Hurricane Florence to the North Carolina coast. Having grown up in North Carolina and formerly calling Wilmington home, it was a timely, personal reminder that though there’s continued debate about whether and why we’re seeing an increase in extreme weather, one thing is certain: natural disasters are not going away. The toll of severe weather events can be devastating and far reaching; Moody’s Analytics estimates property damage and disruption from Hurricane Florence to reach at least $17-$22 billion. However, there are proactive steps you can take to help lessen the personal financial blow should disaster strike. As many work to recover and rebuild in the aftermath of Hurricane Florence—and with two months remaining in the 2018 Atlantic hurricane season—here are four steps you can take today to safeguard your finances regardless of what nature throws your way.

1. Review your homeowners insurance coverage

Sixty percent of U.S. homes are underinsured by an average of 20%[1]—make sure yours isn’t one of them. Your homeowners insurance policy should cover the costs of entirely rebuilding and refurnishing your home (including labor and construction costs) should it be destroyed. Remember to update your policy after any home renovations and consider hiring an appraiser to ensure estimates are in line with those calculated by your insurance company. Keep in mind that your home’s replacement cost is not the same as its market value, which takes other factors into consideration, including land value and supply and demand.

It is also important to understand what’s covered under your policy. Typical policies cover structural damage caused by fire, wind, lightning, hail, and vandalism. If you live in areas prone to earthquakes, hurricanes, and/or floods, you will need to purchase separate protection. Additionally, don’t be fooled into thinking you don’t need flood insurance just because you don’t live on the coast. As we saw in North and South Carolina during Hurricane Florence, flooding can occur anywhere large rainstorms stall over an area. Inland areas in both states saw record amounts of flooding and damage as rivers crested and tributaries overflowed.

Your homeowners insurance policy also covers personal property (e.g., clothing and furniture), should it be stolen or destroyed by an insured disaster. Personal property is typically insured at 50% of the value of your home. However, your possessions may be worth more than that, so we recommend completing a thorough home inventory, including taking pictures and video. Beware of coverage limits, particularly for high-value items such as jewelry and electronics. Standard policies may not cover the full value of an item—for example, your $20,000 engagement ring may only be covered up to $2,500. Instead, you’ll need to add a special personal property endorsement to insure the item for its appraised value.

2. Consider specialized insurance for your most valuable items

For even casual collectors of fine art, wine, first editions, antique furniture, jewelry, etc., a standard homeowners insurance policy will not come anywhere close to sufficiently covering these items. Private collections insurance can give you peace of mind that your most cherished possessions are covered in case of disaster. Insurers catering to high-net-worth clients offer a range of services, including vulnerability assessments, emergency planning, and art preservation and renewal. Some insurers even have teams on standby to evacuate valuable pieces from clients’ homes in case of emergency; this service was in particularly high demand when wildfires threatened Los Angeles last December. Additionally, even if your high-value items make it through the natural disaster relatively unscathed, they may still be susceptible to looting if you’re forced to evacuate.

Regardless of how you ultimately decide to insure your most valuable items, make sure they are well protected. How do you store any items not on display in your home? One popular option is an in-home vault; in addition to storing valuable property, it can double as protection from intruders and natural disasters.

3. Assemble important documents

My colleague, John Maddison, recently wrote about the value of a digital vault for storing important documents. Once the initial emergency passes, having access to these documents will be essential to begin picking up the pieces. Important documents fall into four main categories:

  • Household identification. This is what you’ll need in order to identify yourself and members of your household, your relationships, and your status. Examples include driver’s licenses, passports, social security cards, birth and marriage certificates, proof of pet ownership, etc.
  • Medical information. Examples include health and dental insurance cards; a list of prescriptions, allergies, and immunizations for each member of your household; disabilities documentation; medical powers of attorney; and contact information for doctors, dentists, and veterinarians.
  • Financial and legal documentation. Think about all the documents you would need to provide to insurance companies or to request government disaster assistance. This broad category includes housing (e.g., mortgage, lease, deed) and vehicle (e.g., title and registration) information and insurance policies—this is a good place to include your home inventory and pictures of valuable items. Don’t forget documentation for your financial accounts (e.g., checking, savings, retirement), sources of income (e.g., pay stubs, alimony), tax statements, and estate planning.
  • Emergency contact information. Make a list of everyone you might need to notify or contact in case of an emergency, including relatives, employers, schools, and churches. Don’t assume that you’ll remember important phone numbers when the time comes—write everything down. You’ll also want to include contact information for home repair services, such as tree removal, plumbing, roofing, and electricity.

Make sure the hard copies of these documents are also stored safely—that old filing cabinet in the basement or attic isn’t cutting it. If you store these documents at home, they should be secured in a waterproof and fireproof safe. A safe deposit box at a bank is also a good option.

4. Establish an emergency fund

No emergency plan is complete without an emergency fund. We recommend setting aside at least six months’ worth of expenses to help offset unanticipated costs. Natural disasters place immense demands on insurance company personnel, and it can take months to process claims and receive payment; your emergency fund can assist in the interim.

However, the above assumes you’ll have access to ATMs, which isn’t a given in the immediate aftermath of a natural disaster. To make sure you don’t find yourself bartering for gasoline, we recommend storing up to $1,000 cash (in small bills) in a safe place in your home. This can help cover incidentals such as food and hotels until you regain access to your accounts.

Also be sure to take care of any bills or monthly payments in advance or schedule automatic bill payment, if available. As we saw with Hurricane Florence, many major and secondary roads were impassable for days and sometimes weeks, causing delays with mail delivery. Additionally, internet connectivity isn’t a given in times of natural disaster when there are widespread power outages. While some companies and institutions may offer “grace periods,” you don’t want your financial well being to be reliant on that.

Hoping for the best, but preparing for the worst

Financial preparation is just one aspect of effective disaster planning. Other important considerations include creating a disaster preparedness plan for your family; stocking appropriate supplies, including food, water, flashlights, and a first aid kit; knowing how to turn off access to gas, water, and electricity; etc. Additional information is available online from the Red Cross, Centers for Disease Control and Prevention, and Department of Homeland Security, among other organizations.

As Hurricane Florence reminded us, storms and weather can be unpredictable at best—I sat in front of the TV days before the storm listening to what seemed like hourly changes to the strength and direction of the hurricane. As such, you should have your disaster plan in place prior to any natural disaster. It is also good practice to revisit your insurance policies and documents once a year to make sure there are no changes or additions to your coverage.

[1] Source: CoreLogic

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