Financial Checklist to Prepare for an Emergency
Executive Summary
Disasters can strike at any moment. People may have the medical and food supplies for an emergency or disaster, but are they financially prepared? This 5 step checklist is a great starting point for having the financial security to weather both a natural disaster/emergency and the aftermath. It highlights how to protect yourself and your assets. We can’t know when a disaster or emergency will happen but we can be prepared, and that makes a huge difference in the aftermath.
Natural disasters and emergencies happen without notice. Some people may receive a 48-hour evacuation notice, but at that time, it is too late to make any financial changes. When the worst-case scenario does happen, preparation plays a significant role in navigating the aftermath.
I live on the San Andreas fault line. Not near the fault line, but directly on it. You can see the fault line as a ridge just outside my window. I know one day I might have to respond to the Big One, but I hope that day is a long way off. Until that day, I am prepared for when it does happen.
Having a plan for dealing with a disaster is only half of the preparation. Dealing with the aftermath may take longer and be more damaging if someone is not prepared. To help you prepare for when disaster strikes, here is a 5 item checklist to prepare you for any emergency that will happen.
Have Adequate Insurance
Adequate insurance means that the amount covered by the policy is enough to make you whole. If an insured item is worth $50,000, but the insurance policy covers $30,000 of value, then in the event of a total loss, the insurance company will only reimburse up to $30,000.
To make sure the coverage amount is correct, take time to inventory items that will be insured. Then try to determine an accurate value to replace these items. It is better to overestimate the replacement cost of your possessions than to under-insure. But be aware that a higher amount of coverage will cost more, so try to be as accurate as possible.
It also means that there is adequate coverage for perils. If you are like me and live in an earthquake-prone area, insurance without earthquake coverage means that I can lose everything in an earthquake, and the insurance company would not owe me anything. It is imperative to understand the perils you may face and that the insurance purchased covers these possible incidents.
Car owners
Ensure you have adequate comprehensive coverage. Comprehensive may cover:
Theft
Vandalism
Fire
Riots
Falling objects
Storms
Hail
Winds
Floods
Earthquakes
Accidents involving animals
If you live in a flood plain, ensure you have flood coverage. If you live in a wooded area, ensure you have fire coverage. Having these types of coverage might seem like common sense, but it is surprising how many people do not have adequate coverage and are unaware of the deficiency until it is too late.
For Homeowners and Renters
Various policies cover different types of home dwellers. Policies for renters, condo owners, and homeowners can all have varying coverage details. To ensure that you have adequate coverage, ensure that both your personal property and the dwelling are covered (renters will not have dwelling coverage).
Ensure you have adequate coverage for all perils too. Homeowner and renter policies typically do not cover:
Floods
Earthquakes
Lack of Maintenance
Sewage backup
A rider that explicitly covers these perils adds coverage for these risks. These riders will cost more, but they are worth the protection if someone is at-risk. It is up to everyone individually to determine if these perils need to be covered.
Have cash on hand and easy to access
In a natural disaster, power may not be available. When a disaster strikes, banks and ATMs may not work. If stores lose access to power or the internet, credit cards may not work. These services can be out for hours, days, and even weeks.
If you need to buy things in the immediate aftermath like bottled water, food, and batteries, you may need to pay in cash.
My rule of thumb is that a household should have up to 3 days of cash on hand. Someone can store their money somewhere safe and easy to access in the home. If someone is unsure what three days of expenses may be, another way to calculate how much money you might need on hand is $100 for each person in the household.
Have an adequate emergency fund
The emergency fund provides financial safety for emergencies like natural disasters. Having cash on hand may help with the initial aftermath, but many disasters have long-term financial consequences too. Homes may be uninhabitable, offices may not reopen, and businesses may shut down, which leads to job losses.
An emergency fund should have 3-6 months of expenses saved in a savings account. These savings will help pay for various costs in a disaster's aftermath.
Avoid investing the emergency fund. The emergency fund's purpose is to provide cash at a moment's notice. It can be devastating to wait until the stock market opens the next day or multiple days later to sell an investment to get the necessary funds to afford a basic necessity.
Whether it is insurance deductibles or large purchases, the emergency fund should be able to cover these expenses and still leave you with money to handle anything else that arises in the aftermath.
Store Important Documents in Easy to Access Locations
Natural disasters and emergencies can destroy belongings within minutes. Even if someone is near their critical documents, they may be unreachable in a disaster. Someone may also find themself away from home when a disaster occurs and could return to their home with nothing left. In other disasters, the internet and electricity may be down for an extended time, and people may still need access to these documents before these services are back online.
These important documents include:
Passports
Checkbooks
Social security cards
Estate documents:
Wills
Power of attorney
It is impractical and risky to carry these documents any time someone leaves their house. So how does someone ensure that they can access these documents in an emergency without compromising their security?
There is no solution without tradeoffs, so the best practice is to store the physical documents in a secure location at home. People should also keep a digital copy of these documents on their phone or cloud storage location. Saving these documents both ways ensures access to the digital copies in case the disaster destroys the physical copies, and a physical copy of the digital copies in case the internet is inaccessible.
There are scenarios where someone may not have access to either set of documents. Keeping documents like a driver's license, credit card/debit card, and cash on hand can be an imperfect substitute until recovery of the other documents.
Be aware of scams
It is hard to imagine that people would take advantage of people after disasters, but it does happen. The FBI warns that there has been an increase in charity scams since the start of COVID-19. They also warn that unethical contractors and scammers may try and commit insurance fraud after disasters. Leaving victims in an even worse financial position.
Having enough financial resources to support oneself without outside assistance in the aftermath of an emergency can help prevent falling victim to a scam. In addition to having enough financial security, here are other things people should be aware of:
Do diligent research on people and organizations offering assistance
Be skeptical of copycat names or similar names to reputable organizations
Be wary of new organizations started to aid victims of a high profile disaster
Do not donate through cash, wire transfer, or gift cards
Vet contractors before hiring them to do work for your home or business
In the aftermath of disasters, we want to help others, but we need to protect ourselves first. People should help when they can but be aware that others may have different intentions.
Someone can never have complete protection during and after a disaster, but there is a big difference in how someone's preparation affects the aftermath of a disaster. Taking steps to address each of these items will result in a lawyer being better prepared when disaster strikes. Protecting ourselves financially for whatever life throws at us is an important part of the Developing Financial Process. Whether it is reviewing insurance coverage or adequately funding an emergency fund, we will work together to determine your financial needs. Schedule a complimentary Meet & Confer meeting today to see how Developing Financial can assist you!
Disclaimer: Nothing in this blog should be considered financial advice or recommendations. Your questions are unique to you and your own personal financial circumstances. You should consult with a financial professional before making a financial decision. See full blog disclaimer.