While Houstonians are no strangers to the destruction caused by natural disasters, last week’s intense storms and devastating floods served as a stark reminder. Some were not as fortunate as others as the rising floodwaters severely damaged countless homes and other property. Our hearts and thoughts go out to all those impacted by the storm, many of whom are now scrambling to find alternative living accommodations while they assess the damage to their homes and undertake their restoration efforts. While the flood waters may have destroyed irreplaceable memorabilia and priceless family heirlooms, most homes and cars will eventually be rebuilt and replaced.
There is no question that dealing with an unforeseen natural disaster like the one that struck Houston can take an emotional toll; depending on your level of preparedness, it can also take a financial one.
Here are three ways to keep a natural disaster from becoming a financial disaster.
Maintain Adequate Emergency Funds
Should you lose your home or car in a natural disaster, having access to sufficient cash reserves that can be used to buy basic necessities and quickly start the recovery process (i.e. pay for insurance deductibles, hotels, rental cars, food, etc.) is essential. Waiting on insurance funds to come in could take days, weeks or even months depending on the extent of damage so keep some money in a safe place at home.
While keeping some amount of cash in small bills at your house is advisable, maintaining all your emergency cash “under a mattress” is not advisable. What happens in the event that the mattress is totally destroyed? That leaves you even worse off. Better to use bank accounts and short-term reserves funds (i.e. money market accounts) that can be quickly accessed. You don’t want to have to sell stocks or access other long-term illiquid investments to generate funds when caught in a short-term pinch. Utilizing credit cards with high interest and financing charges is not desirable either.
Know your Coverages and Deductibles Ahead of Time
With regard to your insurance policies – make sure you understand exactly what is covered, the amount of coverage, and the deductibles you must pay before your coverage kicks in.
If you are like most people, perhaps it has been a while since you last reviewed the key provisions of your auto, home, flood, and property insurance policies. Since these policies tend to auto-renew, it is easy to forget about your coverage limits until there is some kind of trigger event (i.e. insurance claim, buying a new car, moving, etc.). By now, most Houstonians that own homes have learned that their flood insurance, underwritten by FEMA (Federal Emergency Management Agency), provides for a maximum of $250,000 for home construction and another $100,000 for contents.
Periodically reviewing the terms of your policies with a knowledgeable agent will help ensure you are well covered and that your deductibles are set at an appropriate amount.
Furthermore, when determining deductible levels, it’s tempting to set them high to keep premiums low. However, keep in mind that in the worst case scenario of damage to your home, auto and other property as was the case with many in the Houston floods, you may have to meet several deductibles all at one time.
Keep Track of What You Own
After you file a claim with your insurer, the amounts and timing of your reimbursement will depend upon several factors including your documentation proving you actually owned your belongings as well as their cost.
Taking a fairly comprehensive inventory of your belongings using video or pictures on your digital camera or smartphone is a great way to document your property. There are numerous apps available that can assist with this process. Taking pictures of original receipts for expensive items is also recommended. These pictures can be uploaded into cloud-based digital storage so they will not be lost if your phone is destroyed. Here’s an article discussing some of the better inventory apps.
Having good records not only assists in getting reimbursement, but can also come in handy with getting some help from the IRS. Depending on the type of loss, you may be able to take an itemized deduction for losses in excess of your insurance reimbursement. Click here for rules related to determining the potential deductibility and amount.