Recent tragedies highlight the need for financial disaster planning

Earthquakes, hurricanes and other natural disasters might seem like events that only happen to other people in far-off places. But recent events highlight the need to be prepared both physically and financially.

The earthquake, tsunami and nuclear crisis in Japan have left millions displaced. Tens of thousands have lost loved ones, many of who were probably the family breadwinners. This human tragedy and loss of life alone are shocking, but now the survivors must cope with emotional and physical trauma, then suffer financial trauma as well.

Shore up your financial house

Hurricane zone residents often reinforce their homes to help the structures better withstand the onslaught. Entire towns are evacuated.

These actions save lives and money, but shoring up your financial situation is too often the neglected part of disaster planning. If a natural disaster strikes tomorrow, are you prepared for the personal financial catastrophe that could follow?

Mitigate the damage

The first step is to mitigate damage to your property.

• Install smoke and carbon monoxide detectors
• Secure furniture such as bookcases to wall studs
• Install a safe for important papers and valuables
• Hire professionals to inspect wiring, plumbing, pipes and foundation
• Clear brush and undergrowth
• Install fire-resistant siding and shingles
• Buy a home in a lower-risk location

These steps can lower insurance costs and minimize property damage. If you can’t afford to pay for these measures outright, consider taking out a loan or pursuing federal aid.

Protect your assets

Your homeowner’s or renter’s insurance will need to pay as closely as possible for the replacement cost of your property, if needed. Insurance rules vary by state, so talk to a professional about the basic and supplemental insurance you might need, including guaranteed replacement cost policies, flood or earthquake insurance and liability coverage. Make sure that computer equipment, jewelry, heirlooms, artwork and other items are covered. If not, you could need to add a policy rider.

Insure your health

Medical costs can add up quickly in a disaster scenario.

The first step is to make sure that you and your family are covered by health insurance. Understand your coverage, including out-of-pocket costs, claim processing steps and payment turnaround time.

Options for health coverage include:

• Group coverage from your employer – or COBRA if you’ve been laid off
• Individual plans
• Children’s Health Insurance Program (CHIP), Medicare, Medicaid, veterans benefits, Social Security and other government programs (you must qualify)
• Disability insurance (benefits are typically tax-free when buying your own policy)
• Workers’ compensation

Talk to an insurance professional, your employer or the appropriate government agency to learn which plans you are eligible for, how much insurance you need and what you can afford.

Plan for the worst

As catastrophic as your untimely death would be at any time, imagine the shock and financial complications it would cause to your family if your death occurred during the chaos of a natural disaster. Talk to your financial planner, insurance agent or tax adviser about the type of policy you need and how much in dollar amounts you should carry.

Your adviser can help you determine:

• Whether to choose term or whole life insurance
• How much life insurance to carry
• How much premium you can afford to pay based on your budget

Keep the cash flowing

If a natural disaster prevents you or your spouse from working, you must ensure that you can replace at least part of your income.

Things to consider include:

• Employer-sponsored and individual disability plans
• Employer policies on payments to employees during a disaster-related work stoppage
• Unemployment benefits and workers’ compensation eligibility
• Social Security disability and supplemental benefits
• Benefits for veterans
• Retirement plan hardship loans
• Cash from whole life insurance policies
• Reverse mortgages and home equity loans

Other tips include keeping an ample supply of cash locked securely in your safe and regularly funding an emergency savings account.

Put it on paper

• Keep a list, on paper, stored for easy access, of essential contact information for government agencies such as FEMA, your employer, family, friends and other emergency contacts vital to your personal and financial well-being. Computers, cell phones and other electronic devices might not work during a disaster, and batteries eventually go dead, so do not rely on electronic address books.
• Store copies of important financial, medical, insurance, banking, estate-planning and other documents in a safe, along with current computer backup disks.

Talk to a professional

For help planning for the financial aftermath of a natural disaster, talk to a trusted tax adviser, financial planner, CPA, insurance agent, government agencies and other professionals for advice that fits your unique situation. If disaster strikes, financial peace of mind will go a long way toward rebuilding for the future.

These articles are intended to provide general resources for the tax and accounting needs of small businesses and individuals. Service2Client LLC is the author, but is not engaged in rendering specific legal, accounting, financial or professional advice. Service2Client LLC makes no representation that the recommendations of Service2Client LLC will achieve any result. The NSAD has not reviewed any of the Service2Client LLC content. Readers are encouraged to contact their CPA regarding the topics in these articles.

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