Making sure you are ready for a financial emergency
The wrath of natural disasters has been on full display in recent weeks as hurricanes, earthquakes, wildfires and floods have ravaged large swaths of the world. While our first thoughts go to the victims of these tragic events and the challenges ahead for recovery, it may also cause you to step back and think about your own preparedness for a natural disaster. If you’re feeling underprepared from a financial standpoint for the possibility of an unwelcome weather event, consider creating an emergency plan.
Create a plan
Just as you plan ahead for your retirement or children’s college tuition, you need to prepare for risks related to a financial emergency. Any type of unforeseen event could jeopardize your financial security. Work with your financial advisor, estate planner and attorney to identify and address potential financial risks.
Protect your property
One common concern in such events is catastrophic damage to your home. Start by making sure your property is appropriately insured. Review your homeowner’s insurance policy to make sure there is sufficient coverage for unforeseen events. Remember that typical home insurance does not include coverage for flood damage, which needs to be purchased separately. Home owners may assume they are not at risk of such damage, but unusual circumstances might mean your risk is greater than you think, so it’s best to double check. Those who rent their living space should consider renter’s insurance to protect property.
In the case of disasters like a flood or tornado, you want to make sure you have sufficient coverage for possessions, including valuables, vehicles (e.g. cars, boats, ATVs), and technology. Maintain good records of the valuable items you own and keep them in a safe place. It can be helpful to take pictures of your property before an event occurs as well as after to help you in the insurance claims process.
Establish your emergency fund
A general rule of thumb is to have at least three to six months’ worth of expenses saved in case of an emergency. Consider saving more if you have children or live in an area where severe weather threats are more common. Keep these funds in accounts that offer liquidity like a money market fund or in bank savings. Make sure you have some cash on hand in case power outages or other issues prevent ATMs from working.
The money you set aside could be used for temporary housing, medical care or to cover your essential expenses if you’re unable to return to work. The funds can also jump-start your relief and clean-up efforts.
Safeguard your financial information
When unanticipated events occur, you will need access to your financial information and personal identification documents. Store copies of your insurance policies, financial account statements, medical information, Social Security cards, driver’s licenses, passports and other important records in a secure location such as a bank safety deposit box or a secure electronic vault.
Having documentation readily available allows you to quickly verify your identity and work through your emergency plan after disaster strikes.
Recent events are a reminder of the importance of having an emergency financial plan in place to help protect you against worst-case scenarios.