Liz Weston: Strengthen Your Finances Against Natural Disasters


Civil protection professionals are advised to have a “go bag” and a “trash can” in the event of a disaster. A kit with materials to help you survive for a few days if you need to evacuate your home or shelter to a designated location.

It is also wise to prepare your finances for natural disasters. With cash on hand, access to credit, and proper insurance coverage will help you survive dangerous times. Strengthening your home in the event of a disaster can also be a good investment.

Of course, not everyone can make these preparations. The poorest people are often struck by disasters. But now anything that you can do to make your situation stronger can help you limit the victims.

Hide the money

Having cash on hand will help pay for groceries, gas, shelter, and other necessities if your ATM or payment system isn’t working. This can happen if the system goes offline due to power failure or cyber attack.

You may need more than you think, especially if you will be away from home for more than a few days. Consumer insurance lawyer Amy Buck recommends keeping at least $ 2,000 in a safe place somewhere in your home. Bach, executive director of the nonprofit United Policyholders, said after widespread disaster there was frequently “incredible competition” for rentals and other accommodation, and cash deposits guaranteed a place to stay. . It indicates that it can be useful for.

Currency must be added to emergency savings in the bank. Again, this is better than nothing. Financial planners usually recommend emergency financing, which is worth the cost of three to six months, but even hundreds of dollars can help.

Get a loan

Your insurance may have high deductions or other restrictions on your coverage that require you to pay thousands or even tens of thousands of dollars out of pocket. For example, insurance against earthquakes and hurricanes often includes a deduction of at least 10% of the amount of insurance. Insurance companies can also limit the amount they pay for upgrades and replacement of old roofs needed to meet current building codes, Bach said.

Home equity lines of credit give you access to relatively cheap sources of finance in an emergency. Lenders do not allow you to rent a damaged home, so you need to adjust this time frame well before disaster strikes. Resist the urge to use this credit for other purposes and make the money available when you need it.

If you are a tenant or are unable to qualify for HELOC, an alternative is to apply to your bank for a personal line of credit. Credit cards can also help you pay your bill if you have enough credit. Once you have around $ 500 for an emergency, consider paying with a credit card and aim to use less than 30% of your credit limit. It’s even more efficient to use fewer credit limits because it frees up space on your card and helps you build and maintain your credit score.

Try to cover the big risks

Check out freehomerisk.com, a database created by HazardHub that provides risk data to insurance companies, to see how vulnerable your home is to various disasters. Each hazard that the property may face is rated from A to F. The lower the rating, the more risk you should consider if possible, says Bob Frady, co-founder of Hazard Hub.

This may mean purchasing additional coverage. The regular owner’s or tenant’s policy does not cover damage caused by flooding or earthquakes, for example, but these covers can be purchased separately.

Check the policy to see what is and isn’t. Make sure you have replacement coverage for your property, not actual cash value coverage. You will also need at least 24 months of downtime. It will be a payment for living expenses while the house is rebuilt, Bach said. Large-scale disasters can lead to even longer reconstruction times.

For example, “it usually takes at least two years to rebuild after a forest fire,” she says.

Protect your property if you can

There’s no way to completely protect a home from disasters, but there are ways to “harden” a home to reduce potential loss, Frady says.

Frady helped launch the Hazard Hub after a friend’s house was unsecured and badly damaged when a nearby river overflowed the embankment. A friend didn’t know she lived next to a flood-prone area because she hadn’t been asked to purchase flood insurance from a mortgage lender, Frady says.

If she knew, she would take steps to protect her property, such as buying insurance, regularly replacing batteries in a broken drain pump, and keeping valuables out of basements and other low areas of the house. . I should have been able to take it.

Windbreaks can reduce losses from hurricanes and tornadoes, but bolting a house to a base can withstand an earthquake.

“Knowing what the danger is is powerful, which can lead to creating a safer place for you,” says Frady.

Liz Weston is a columnist at Nerd Wallet, a certified financial planner and author of Your Credit Score. Email: lwetonnerdwallet.com. Twitter: Liz Weston.

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