Disaster Prep Plan at the Ready? If You're Not Prepared, it Could Cost You

I just spent some time in Florida and wondered whether Floridians will have to batten the hatches this year due to a hurricane. (A quick Google search said probably not, as most of the hurricane season has already pushed past us — hurricane season runs from June 1 to November 30). As a Midwesterner, I've always had a fascination with tropical storms because I've never dealt with one. (Instead, a tornado rolled just two miles away from our house one summer.) 

Natural disasters have become more frequent, according to an Ipsos/Wells Fargo & Company survey. Four in five Americans (84%) live in areas that have experienced some form of natural disaster in the past three years. Over half (54%) live in areas that have experienced severe natural disasters, specifically hurricanes, tornadoes, floods, wildfires or earthquakes.

Even so, less than half (44%) of those surveyed have started an emergency savings account to prepare for unexpected financial disasters.

Whether you live in an area that’s affected by earthquakes, wildfires, tornadoes or hurricanes, it's important to put together a plan and enough savings to recover and even rebuild, if necessary. Let's walk through what you should do.

Step 1: Build an emergency fund.

The general rule of thumb is to have between three and six months' worth of emergency fund money at the ready for any emergency. You can do this by opening a savings account specifically for emergencies and signing up for automatic deposits to go directly into this savings account. You can opt for both short-term or long-term emergency funds, such as putting money in a money market account for a short-term emergency fund or putting money into a certificate of deposit (CD) for a long-term emergency strategy (just realize that you may not be able to get your money out of a CD without paying a penalty if you need it sooner).

It's also important to have a strong reserve of emergency cash available for basic necessities if you do encounter an emergency — to buy food, gas or a hotel room further away from where the disaster is happening. Banks and ATMs may not work for days after a hurricane or wildfire. Keep three to five days’ worth of spending money on hand, just in case. You can total up the amount it would cost to feed your family, put gas in your car, buy necessary medications and provide temporary shelter. A good baseline emergency cash fund may be $2,000, but that can vary depending on you or your family's specific needs.

Step 2: Review your insurance policies.

Next, take a look at your insurance policies. Remember that most homeowners insurance policies include fire-related damage but don’t cover damage due to floods or earthquakes. If you don't have an additional rider or policy to cover these additional perils, find out from your insurance company to learn what’s actually covered and make sure you have coverage for any gaps that may exist. You may want to ask about the following: 

• Flood insurance: If you live in a flood-prone area and you have a mortgage, you may be required to purchase flood insurance. In fact, more people live in flood zones than previously thought, so flood insurance is a good idea even if you aren’t required by your lender to purchase it. In fact, the number of people living in flood-prone areas increased by an estimated 58 million to 86 million. This marks a 24 percent increase — 10 times higher than traditional predictive models, according to Bloomberg.
• Earthquake insurance: Earthquake insurance, not normally included in a homeowners insurance policy, provides coverage for your home in case an earthquake causes damage (with the exception of fire) to your home. 
• Windstorm damage: In some hurricane-prone states, your regular homeowners insurance won't cover wind damage. If you want this type of coverage, you'll need to buy a separate windstorm insurance policy.
• Wildfire: A homeowners insurance policy covers fire damage, including wildfire damage. However, it's important to check the types of coverage you can get to help repair or rebuild your home, replace belongings and more.
• Hurricane: If you have a mortgage, your lender will most likely require you to have hurricane insurance in hurricane-prone areas. Check the requirements and find out your coverage level options through your insurance company. In addition, think through other overlapping coverage areas. For example, if your homeowners insurance covers wind damage but you don't have flood insurance, a portion of your claim could be denied (or the whole thing could be denied) if you have water damage.

Step 2: Total up your costs.

The average claim through homeowners insurance paid out more than $100,000 than FEMA after Hurricane Harvey, according to the Houston Chronicle. Figure out how much it will cost you to replace your entire home — not just how much your home is worth. Consider getting coverage equal to your property's rebuilding cost or to the maximum limit of coverage you can get. You may only have to get minimum coverage but you may want more to cover your home and possessions.

In addition, find out how much extra insurance will cost you and pull together your budget to pay for it. Call around to different insurance companies if you're not sure your insurance company will give you the best deal.

Step 4: Create an emergency kit for documents.

Creating an emergency kit in advance can help you if you need to leave your home immediately or cannot stay in your home if the unthinkable does happen. Organize a disaster-proof box that contains copies of documents you might need during a disaster, such as legal papers, financial information, identification and more. Check out FEMA's Emergency Financial First Aid Kit list, a printable checklist of important documents you can gather for your emergency box. Consider storing your original documents in a safer location, such as in a safety deposit at a bank. 

Get Prepared Now

Natural disaster planning (no matter where you live) can keep you from feeling its devastating effects. Now's the time to prepare for them, while risks may be lower. You can’t always predict how much damage a natural disaster will cause, but you can ensure your financial preparedness in the event of an emergency. 

Curious about your risk level? FEMA's National Risk Index offers a way to help illustrate the risks of the following natural disasters in the United States: avalanche, coastal flooding, cold wave, drought, earthquake, hail, heat wave, hurricane, ice storm, landslides, lightning, riverine flooding, strong wind, tornado, tsunami, volcanic activity, wildfire and winter weather. It also considers community risk factors to help you understand the natural hazard risk of your community.