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When is the time to consider a financial emergency preparedness plan? When disaster strikes, your immediate concern is for the safety of your family. Money is the last thing on your mind if a wildfire or hurricane is heading your way. After the danger passes you will put the pieces of your life back together. That’s when a financial emergency preparedness plan becomes priceless.
Natural disasters often come with unexpected expenses, as it is hard to budget in a tornado next week. You’ll need to stock up on supplies at the very least, not to mention money to evacuate to safer ground. Then once you’re safe, you may need to replace necessities like clothing, hygiene items, and other personal belongings. Without a financial emergency preparedness plan in place, you could find yourself far from home, and without the cash you need to get back. Or even just to get by.
Once you get the all clear to return home, will you then be prepared to put your life, and home, back together? You’ll need ready access to your bank accounts and important papers. And don’t forget the phone call you’ll need to make to your insurance company; they’ll have a lot of questions you need to answer. After a traumatic experience, you’ll want the recovery process to be as smooth and comfortable as possible.
To answer the first question posed, the time to create that plan is now. You don’t want to end up like the family in this hilarious PSA from FEMA:
So, let’s take a look at what you’ll need in the case of a natural disaster or another emergency. By planning ahead, you’ll be able to ease back into normalcy so much faster. We’ll walk you through setting up your financial emergency preparedness plan, step by step, for that extra sense of security.
Critical Items for Your Financial Emergency Preparedness Plan
The first step in devising a preparedness plan is taking stock of the items you already have and organizing them for a quick bug-out. Find an easy to access place accessible to any member of the family in case you need to evacuate in a hurry.
Gather financial documents
Put together all your necessary personal financial information, such as your home or renter’s insurance, banking information, passports, and vehicle titles. Purchase a waterproof envelope or other container and keep these items stored where you can find them quickly as you need to head out the door.
Find identification papers
Although you can replace them, it’s inconvenient to lose documents like birth and marriage certificates. Keep these, and similar documents like social security cards, immunization records, and medical records with your financial information and take them with you. Should any disaster destroy your dwelling, this step can save you a lot of time and trouble in the aftermath.
For items that you usually carry, such as ID cards, driver’s licenses, and social security cards, make copies of these to store with your financial information and other records. Be sure you have copies of ID for all members of the household, including pets.
Cash and valuables
Put aside the amount of money that you’ll need for three to five days in case you need to evacuate. The amount will depend on how much cash you feel comfortable holding, the size of your family, and your needs. Keep this money in the waterproof container along with your papers. It’s sometimes hard to do this as a lump sum, so consider adding a $20 to your disaster “piggy bank” every pay period to build it up slowly.
You may also want to make sure you have a container for valuables to take during an evacuation. These include bearer bonds, family jewelry, or other small, irreplaceable items. Add a spare set of car keys for each of your vehicles, as well.
Evaluate Your Current Emergency Recovery Systems
The second step for a financial emergency preparedness during a disaster is evaluating the systems you already have in place. Sure, you have home insurance, but when was the last time you examined the policy to make sure it met your current needs?
Property insurance
Evaluate your homeowner’s or renter’s insurance before disaster strikes. If you don’t have one of these plans, speak to your broker to put one in place. Should a natural disaster hit your home, you’ll need coverage to restore it to livable conditions. Most mortgage companies require you to keep an active homeowner’s plan during the life of the loan but make sure that it’s up to date. If your home has appreciated considerably since purchasing the policy, you may need to upgrade.
If you already have a policy, check the terms to ensure that it covers any likely calamities. For example, although your mortgage lender doesn’t always require flood insurance, if your home floods without coverage, you’ll be left to pay the cost of repairs out of your own wallet.
What is natural disaster insurance?
Although standard homeowner’s insurance covers many natural disasters, such as wind from tornadoes or damage from forest fires, it doesn’t cover all incidents. For example, if a hurricane damages your house, it’s probably covered by your policy.
However, if the hurricane causes flooding from a storm surge, your policy probably won’t cover the damage. Natural disaster insurance is additional coverage in case of uncovered natural events. These plans provide flood coverage for properties on lakes, rivers, or oceans. They can also cover damage from earth movement, such as earthquakes or sinkholes. You can even purchase a policy for active volcano coverage. If you live in an area subject to these hazards, talk to your agent about natural disaster insurance in addition to your homeowner’s plan.
What is the National Flood Insurance Program?
The National Flood Insurance Program (NFIP) is a federally managed resource for homeowners created and administered by the Federal Emergency Manage Agency (FEMA). Flood insurance is expensive, and with climate change causing an increase in major storms and flooding, the cost can often price families right out of their homes. At the very least, the high cost can mean they have no resources should they lose their home to a flood.
Participating communities can take part in the NFIP by agreeing to adopt floodplain management ordinances. These ordinances work to prevent flood damage in the future. In exchange, the NFIP provides lower-cost, government-backed flood insurance. As well as being less expensive than other flood insurance programs, it also means families don’t have to wait for disaster assistance to get their homes repaired after a flood. FEMA provides this insurance in high and moderate-to-low risk areas. Most importantly, it also helps homeowners meet the requirements of their mortgage lender, which may require extra coverage if they live in a flood zone.
If you think you may live in a flood zone, you can verify your suspicions at the FEMA Flood Map Service Center. Just enter your address to find the appropriate map. Insurance agents write NFIP policies across the country, so contact your agent for coverage.
Create an emergency fund savings account
Having an emergency fund is always a good way to meet the future and anything that it brings. Along with a small stash of cash to take on the road, start saving an emergency fund earmarked just for unhappy surprises. Like your cash reserve, the amount needed will depend on your financial means, the size of your family, and your needs. However, most experts suggest saving as much as six months of income.
Should a disaster put you out of work, you’ll have something to fall back on during the recovery period. It can also help cover deductibles for home repairs or the cost of relocation. Remember to replace any spent funds at the first opportunity, so your emergency fund savings account is always ready for anything.
Document Your Vital Information
The next step in your financial emergency preparedness plan is to document all the vital details of your life. Although we usually hesitate to imagine the worst, it helps to have all the details handy should the worst ever happen.
Use the EFFAK download package
FEMA provides a comprehensive downloadable packet so you can document your life’s details. It includes everything from contact information for your financial institutions to your children’s names and the schools they attend. By downloading and completing the Emergency Financial First Aid Kit (EFFAK) provided, you’ll have all the necessary information close to hand, whether you’re a victim of identity theft or have a missing family pet.
The EFFAK breaks down the types of information and documentation you’ll need by four areas:
- Household information and identification
- Legal and financial documents
- Medical records
- Contact information
The packet walks you through the steps you need to take to make sure you have a complete plan in place.
Document your property and assets
Along with all the vital information about your family, make sure you create a home inventory of your possessions should you need to file a claim after a disaster.
One way to get started on your inventory is by recording a video as you walk through your home. This video can serve as proof of ownership and the condition of the contents of your home. As you record, describe the items you’re documenting. Don’t forget to record a tour of your attic, basement, garage, and any outbuildings you have.
To back up your video, take photos of items you’d need to replace, including appliances and furniture. If possible, include pictures of any manufacturer’s label or serial numbers on your belongings.
Do you own collectibles, artwork, or other high-end items of value? Make sure to photograph these as well, along with any receipts or certificates of authenticity. If you haven’t had them appraised, you might want to take care of that as part of your financial emergency preparedness plan. Make sure your homeowner’s insurance covers such items, or talk to your agent about adding a rider for these high-value items.
If you’re not sure exactly how to get started, try downloading one of these free home inventory apps.
Once you have your home inventory prepared, store a copy in your personal financial information envelope. It might also be a good idea to keep one copy on your smartphone and another filed with your insurance agent.
Plan for Recovery Before the Disaster
Although we always hope for the best when an emergency occurs, sometimes nature throws us a curveball. Natural disasters cause fear and panic, and it’s not surprising that many people fail to think of all the little details in the middle of the chaos. That’s why it’s so important to plan ahead by creating a financial emergency preparedness plan with everything you need to get back to normal as soon as possible.
Take the time to put together an escape plan along with the documents and cash you need in case of emergency. Use these financial emergency preparedness tools to create a comprehensive plan that covers every contingency. And if you’ve found other great tools, like the EFFAK or home inventory apps, please share them in the comments below. We’d love to hear how others stay prepared in case of disaster.
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