How to Prepare Financially for a Natural Disaster

Put important financial documents on a thumb drive.

In the event of a wildfire, flooding, hurricane, tornado, or other traumatic natural event, it'll hasten your recovery if important financial and estate documents are saved—and not just on paper, or stored in a closet or file cabinet where they can be easily destroyed.

"Save important financial documents, such as birth and marriage certificates, wills, deeds, tax returns, insurance policies, and stock and bond certificates, on a thumb drive," says Rullah Price, head of public affairs resiliency and enterprise incident communications for Wells Fargo. "These records are often needed for tax and insurance purposes."

Alternatively, prepare an emergency document kit, advises Paul Sundin, a CPA and tax strategist with Estate CPA. "When disaster strikes and you need to flee right away, you just grab this kit along with your other essentials," he says. "This kit should contain copies of important documents, such as homeowners' insurance policies, health insurance policies and information, deeds, recorded real estate documents, and information on all investment and financial accounts. Store these in a waterproof and fireproof box."

Another option is to photograph or scan your paper documents and store them securely in a Cloud storage environment, where you can retrieve them from any device after the disaster, says John Bodrozic, cofounder of the digital home management platform HomeZada. "Your home is probably your largest financial asset and biggest expense, so if it's destroyed by a natural disaster, you must have access to all your important records to be able to financially recover quickly," he says.

Create a visual inventory of your valuables.

It's important to document possessions or items tied to your house that have monetary value. To start, Price suggests using a smartphone or camera to visually record such things as cars, boats, and recreational vehicles.

You also want to document the condition of your home. "Photograph the interior and exterior of your home, including landscaping," Price explains, "making special note of any improvements, such as a patio, fencing, or outbuildings, as these may increase property value and help with insurance claims."

While you're at it, write a list of important possessions. Pat Howard, licensed home insurance expert for Policygenius, suggests creating a home inventory of your personal belongings such as clothes, appliances, and electronics. "This will increase your chances of a successful insurance claim," he says. "When putting together your inventory, include product descriptions, prices, photos, receipts, and anything else that can improve your chances of a more accurate payout in the event your things are damaged."

If your possessions are damaged due to a natural disaster, contact your insurance company as soon as possible and provide them with as much proof as possible, including before and after photos of your items.

Create a safety-net savings account.

Maintaining an emergency fund with three to six months' worth of savings is a key part of any household budget. But it's also important to have savings specifically earmarked for natural disasters. "Funds that you can draw on quickly and easily can be a lifesaver in the wake of a natural disaster," Price explains.

If possible, Carrie Friedberg of SF Money Coach recommends keeping as much as 12 months of savings in a separate account that's designated for such emergencies. "If a natural disaster struck and you experienced an interruption of income, you could live on this money during the transition period," she says. "Being proactive with a safety net savings account will contribute to your emotional and financial security, whether you ever use it or not."

Set aside cash.

In addition to having a designated bank account where you've squirreled away survival funds, Sundin advises you also keep some cash on hand in your home. "Cash is king when it comes to emergency situations, especially when ATMs have become unavailable. Load your emergency kit with enough cash to pay for food and other necessities for at least three days," he says. "This will certainly come in handy when it's not possible to withdraw money from the ATM or bank, when electricity is out, or when you find yourself unable to return home."

Keep a credit card or other financial tool for emergencies.

Cash is an essential for your emergency kit, but it's good to have a credit card stored there, too—one that's set aside exclusively for an emergency. "You may end up without your wallet, phone, or other key items during a disaster," says Carter Seuthe, CEO of Credit Summit. "And even if you retain these things, you don't want to be worrying about how close you are to your credit card's limit when you're buying gas to evacuate."

Set up auto-payments for important bills.

If a natural disaster strikes, ensure you don't fall behind on your bills, particularly if you don't have access to electronics. "Set up automatic payments for your monthly bills," advises Mike Martinez, president and CEO of the wealth management and financial advisory firm M Martinez and Associates. "You never know how long you'll be out of commission in the event of a natural disaster."

Part of protecting your finances involves protecting your credit. If a natural disaster occurs, Price of Wells Fargo recommends reaching out to creditors to ask for a temporary reprieve on payments. "It's a good idea to include the contact information for your creditors—such as your mortgage lender, credit card companies, and utilities—in your emergency document kit," he says.

If you haven't already, consider switching any income received from an employer or other source to direct deposits. This ensures continued access to that money if you become displaced from your home (or where you receive mail). "If you receive paychecks, Social Security checks, or other income via regular mail, you could find yourself in trouble if a disaster disrupts postal service," says consumer finance expert Tanya Peterson, vice president for Freedom Financial Network. "Many, if not most, companies and organizations now provide direct deposit at no extra charge."

Check to ensure you have adequate insurance coverage.

Insurance policies can help you recover financially from a disaster, provided you have the right coverage. Price recommends reviewing your property, flood, life, and disability insurance policies once a year (preferably when you receive new documents from your insurer). "Don't focus only on your deductibles and coverage amounts—pay attention to the riders as well," he notes. "For instance, does your property insurance cover temporary food and housing costs if you have to evacuate but your home is undamaged? If you miss work for a week because you've had to evacuate, will your disability policy cover your lost income? Talk to your agent about covering any gaps in your policies, and make sure you know who to contact and what documentation you'll need to file a claim."

It's also critical for homeowners to know that, while standard homeowners' insurance covers most types of extreme weather, some types of natural disasters aren't covered and require additional coverage. "For example, most people don't realize that a standard home insurance policy doesn't cover damage from flooding or earthquakes," says Howard at Policygenius. "But not everyone knows this, and it often leads to people being underinsured and having to rely on federal disaster aid or covering expensive repairs out of pocket."

In fact, 53.3 percent of homeowners don't realize that flood damage isn't covered by a typical homeowner's insurance policy, according to a 2020 Policygenius survey. Further, over 80 percent of homeowners don't realize that earthquake damage is also not covered by a standard policy.

"It's important to make sure your home and insurance policies are fully prepared in advance of inclement weather or natural disasters," adds Howard. For example, if your area is prone to hurricanes, "Many insurance companies place a moratorium on new policies once a tropical storm has been announced by the National Weather Service, so it's important to check your coverage and make adjustments well in advance of hurricane season."

Have your roof inspected.

It's possible your insurer won't cover roof damage after a natural disaster if they determine your roof was previously in poor condition. If it's been several years since you've had a roof inspection, especially if it's an older roof, consider getting it inspected and share passed-inspection documentation with your insurance company.

"Having proof of a passed roof inspection with photos or videos can improve your chances of a successful claim," explains Howard. "After a storm, contact your insurance company as soon as possible to let them know of any damages, and document the damage thoroughly before you start making temporary repairs."