4 Ways To Avoid Financial Ruin From a Natural Disaster

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The U.S. has experienced a record number of weather and climate disasters in recent years — and the worst time to think about your money is after a disaster strikes. Financially planning for the unexpected may seem counterintuitive, but it is important.

“Many people underestimate how quickly costs can pile up — from temporary housing to replacing damaged items — and this can lead to financial hardship,” said Lewis Garvin, the corporate communications manager at PenAir Credit Union. “Even saving just a small amount consistently can build up over time, providing a safety net for unexpected events.” 

GOBanking Rates spoke to Garvin and other experts to gather four ways to avoid financial ruin from a natural disaster. 

Plan Ahead

The adage “if you fail to plan, you plan to fail” is perfectly applicable to protecting yourself from a financial shock when natural disasters strike. Planning could save you a lot of headaches and the risk of financial ruin after a natural disaster.

“Thinking that it can’t or won’t happen to me is one of the most common mistakes we see,” said Michael Silverman, founder and president of Silver Lining Insurance Agency. “When one plans for a disaster of any nature, then the disaster can be mitigated from a financial standpoint.” 

Silverman recommended knowing in advance what resources are available in case the worst happens.

“Does your insurance provide for coverage in the event you can no longer live in your home?” he asked. “Disasters need to be planned to be handled. We suggest that everyone have a plan including a list of contacts and where documents are in the event they are needed and cannot be retrieved on paper.”

Know What Your Insurance Policy Covers

If a natural disaster happens, take photos and document any property damage for insurance claims when possible. Contact your insurer as soon as you can to start the claims process as many near you were likely affected by what occurred.

Stay prepared by reviewing your insurance policy every year to understand what your policy covers and doesn’t. For example, most people think that they are covered for flood and wind insurance during a hurricane when they aren’t, said Peter McMurtrie, a partner at West Monroe Insurance Practice. 

“If you’re not carrying flood insurance, ask yourself if you’re comfortable with that decision,” McMurtrie said. “Just because you’re not in a flood zone doesn’t mean you won’t need it, as we’ve seen in recent days and years. Get an understanding of flood insurance costs, and weigh whether the peace of mind it provides is worth the investment.” 

Handle Your Money

Aim to have at least three to six months of living expenses available in an easily accessible account to cover unexpected costs like temporary shelter, repairs or lost income. Having this emergency fund or savings can cushion you against financial disasters when natural ones happen.

“Enroll in digital banking and ensure you have access to your accounts remotely through online and mobile banking platforms,” Garvin said. “This will be essential if physical branches are closed, or ATMs are down.” 

He also recommended keeping cash on hand and storing critical documents such as IDs, insurance policies, property titles and bank account information in a waterproof, fireproof safe. 

“In case of power outages, having enough cash to cover essential expenses can be a lifesaver as ATMs and card readers may be offline,” Garvin said. “Create digital copies of important documents and store them securely online as a backup. It’s a good practice and resource to have in the event a storm hits.” 

Maximize Your Tax Advantages 

You may be eligible for tax extensions and tax breaks if you live in a federally declared disaster area. 

Taxpayers living in a federally declared disaster area are eligible for filing and payment extensions and casualty loss deductions, said Mark Luscombe, a principal federal tax analyst for Wolters Kluwer. 

“If the property is a personal-use property or is not destroyed, the amount of the casualty loss is the lesser of the adjusted basis of the property or the decrease in the fair market value of the property as a result of the casualty. 

In the case of business or rental properties, then the amount of the loss is the adjusted basis minus any salvage value, insurance or other reimbursement you may receive, Luscombe said. 

“The deduction can be claimed in the year the loss is sustained,” Luscombe said. “Or to get a more rapid refund, it can be claimed the year before, even by filing an amended tax return.” 

Finally, Luscombe recommended checking whether your employer’s retirement plan allows penalty-free withdrawals in case of hardships or an emergency. 

Caitlyn Moorhead contributed to the reporting for this article.

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