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Disaster-Proof Your Finances

5 tips to help you recover more easily from a flood, fire or other natural disaster

WE’VE ALL SEEN UNSETTLING IMAGES of people fleeing their homes in the wake of natural disasters. Many of us may even know friends or family members who’ve had their lives turned upside down by the force of mother nature.

Watching those reports on the news can be disturbing—especially when it’s happening to someone you know or love. But it may inspire you to reach for your checkbook to help those affected (see our slideshow for insights on how to give effectively). And it can also serve as a useful reminder to ask yourself: Would I be prepared if something like that happened here?

While many people do have emergency plans—particularly those in high-risk areas—they’re less likely to have a financial go-bag, says Tony Steuer, author of Get Ready!: A Step-By-Step Guide to Maintaining Your Financial First Aid Kit. Here are 5 tips that can help you work with your financial advisor to prepare for the potential costs of a natural disaster and recover more quickly should one happen to you.

“Scan crucial financial documents and upload them to a reliable cloud-based storage service like Merrill’s document vault.” Merrill Financial Advisor L. Thorne James

1. Create a financial first-aid kit.  To make it easier for you to cope with financial priorities in the first days and weeks after an emergency, put physical copies of the financial documents you’ll probably need immediately in a waterproof “go bag,” Steuer says, which you can then store in a secure place. The bag should include financial statements, copies of utility bills and credit card statements, insurance policy account numbers and agent’s contact information, health insurance cards, medical records, wills (including living wills) and medical powers of attorney.

Tip: Consider switching to secure electronic delivery for bank, credit card and other financial statements to avoid having financial records and account numbers get into the wrong hands during a natural disaster.  Doing so not only saves paper, but also avoids the situation where, say, in the case of a tornado, personal financial statements might end up blowing around on the street.

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5 things to ask before you donate to disater relief

Want to help others who have been struck by disaster or misfortune? Gillian Howell, national private philanthropy executive at Bank of America Private Bank, suggests putting these 5 key questions to your financial advisor and a philanthropy specialist. View this slideshow to see them:

What kind of help is needed

Aid agencies can be overwhelmed by well-meaning people sending what they believe are necessary items. “Don’t send physical goods unless they’re specifically requested,” says Howell. Often, money is the most useful gift.

is the organization equipped for the job

Does it make use of its resources efficiently? Vet charities at sites such as CharityNavigator, Center for Disaster Philanthropy and National Voluntary Organizations Active in Disaster.

is the organization formed in response to specific disaster

“While there’s a good chance a new agency is legitimate, you might want to find out more,” says Howell. What do you know about the board and the staff? Who are some of the other funders? Consult with a financial advisor and a philanthropy specialist.

Does the organization have local partners or affiliates

Especially in international disasters, the importance of local knowledge is paramount, as responders need the ability to navigate the language, culture, policies and local institutions.

Does the organization have current exempt status from the IRS

Tax-exempt status can help if you want to receive a deduction on your donation, and can also be a sign that the charity in question is legitimate.

2. Protect and preserve important documents. Store other key papers you’re likely to  need at some point, such as recent tax returns, property deeds and brokerage and retirement account information,  in a safe-deposit box or safe that can resist fire, water, or structural damage to your home.  “You could also scan important documents and upload them to a reliable cloud-based storage service like Merrill’s document vault,” says L. Thorne James, a Merrill financial advisor and managing director of Merrill Lynch Wealth Management in Raleigh, NC. That  way you’d have  easy access to them via any device capable of accessing the internet from any location, during or after an emergency.

Tip: Make sure that other family members know the location of documents, and how to gain access to them.

3. Evaluate your insurance. Your current policies may not give you adequate protection. “Floods and earthquakes aren’t always covered under traditional homeowners’ policies,” Steuer says. The majority of flood policies are sold by the National Flood Insurance Program, with an average annual premium of about $700. Flood damage to your car—an often overlooked potential risk—can be part of your auto insurance’s optional comprehensive coverage, notes Steuer.

Tip: Whether you rent or own, it’s a good practice to take pictures or a video of your property—inside and out. Also note the make, model, serial number and purchase date of big-ticket items such as electronics, artwork or jewelry you may have to leave behind. And be sure to upgrade your insurance whenever you upgrade your home.

KEY DOCUMENTS FOR YOUR EMERGENCY GO-BAG

Download this checklist

4. Establish a source of ready cash. Even with insurance, disaster-related out-of-pocket costs—including unplanned living expenses if you’re displaced for a  time—can be high. To bolster your emergency savings, you might talk with your advisor about potentially taking out a flexible line of credit such as a home equity line of credit (HELOC).  Or you could consider obtaining a line of credit secured with other assets, such as your investments. “These lines of credit can be a lower-interest cushion that prevents your having to dip into retirement and investment accounts,” says Patrick Bitter, senior credit and banking product manager at Bank of America.

Tip: Consider establishing access to a line of home equity line of credit (HELOC) in advance. Another option to consider: your advisor can often quickly help you set up a line of credit secured by your investments.

5. Share information widely with family members. “In most families, one person manages the majority of financial activities,” says Steuer. “If that person is incapacitated and other family members don’t know what bills have to be paid, or where to locate the checking and savings accounts and other important  documents, that’s when things can get even more complicated. Have regular family financial meetings to discuss where stuff is stored, and how your filing system works.”

Tip:  Keep a schedule of bill payments in your go-bag so you can avoid late payment fees and interest charges, which can harm your credit score.

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