Natural disasters don’t need to be financial disasters

Patrick Hanning didn’t plan to evacuate. With Hurricane Sandy bearing down on his home in Breezy Point, New York, the financial professional with Prudential Advisors thought he’d ride out the storm with a few friends. A phone call from his worried daughter changed his mind.

“It’s not like I was going to save my house. There was no reason to stay except to be macho,” Hanning says. “I’m glad I listened.”

The headlines have been filled lately with natural disasters: hurricanes Harvey, Irma, Maria and Nate, wildfires in California, and earthquakes in Mexico. Survivors are beginning to pick up the pieces, just as residents did in Breezy Point, where Sandy’s flooding and a resulting fire leveled more than 350 homes. Hundreds more required significant repairs[1].

Even if the damage to homes and personal property is devastating, the financial impact of a natural disaster doesn’t have to be. There are lessons to be learned from those who bounced back from past disasters—and the strategies, programs and policies that helped them do it.

Before disaster strikes

The best way to financially survive a disaster, of course, is to prepare for one in the first place. Hanning suggests:
 

• Keep an emergency fund in the bank to cover expenses for at least three months.


• Establish an equity line of credit, which should carry a lower interest rate than running up credit cards. You only pay interest if you take the money, so it’s an option that is there for you immediately.


• Consider flood insurance. While it is mandated for properties for most people with mortgages living in flood zones mapped by the Federal Emergency Management Agency (FEMA), even those in low-risk areas can purchase the National Flood Insurance Program’s Preferred Risk Policy, often as little as $400 a year[2]. 


• Ensure you have enough insurance to cover the replacement of your home and its contents. Many policies include wind coverage, but double-check yours, as a policy without ample coverage might not compensate for the entirety of a storm’s damage.


• Keep electronic copies of important financial records, and save hard copies in a waterproof box in a secure location.

Early days of recovery

“I couldn’t live in my house for many months,” Hanning says. “Even when I got back in, I didn’t have any running water. No heat. All my neighbors, all my family were in the same position.”

For immediate help after a disaster, Hanning suggests thinking about the following:

• FEMA is the first place to turn, but those in need must be persistent. “You’ve got to keep pushing. If you just sit back, you’re not going to get the aid you need for months,” he says.


• The Small Business Administration offers low-interest loans to help business owners and homeowners in declared disaster areas get back on their feet. “You still have to pay that money back, but at one or two percent interest, its manageable,” Hanning says.


• Your recovery dollars are precious, so watch out for scams. Even well-intentioned individuals offering help may be inexperienced and unable to deliver on their promises. The contractors you trust might be booked up, and you’ll have to go with somebody less known.


• Account for where every dime is spent. Get receipts, because if something happens again, insurers or relief agencies may want to know where that money went the first time.


• Talk to a tax advisor, because some losses that aren’t compensated for may be able to be written off at tax time.

Keep a long-term view

Hanning says that while some life insurance policies and retirement plan accounts allow for withdrawals in case of emergency, this can negatively impact your financial future.

• Avoid tapping into your retirement funds. A hardship withdrawal can affect you now with taxes and possible penalties, and in retirement, because you aren’t always able to put that money back.


• If necessary, consider taking a loan from a retirement plan account that allows it, as long as the interest rate is low and the repayment plan is reasonable.


• Contact your financial institutions. Many are more than willing to make special arrangements with those who have been impacted by natural disasters. “I had clients that were able to talk to their banks and forego their mortgage for six months,” Hanning says. “They still had to pay the interest, but in the short term, it helped them get through.”

Find help, and keep the faith

Having a trusted financial professional may help survivors navigate the steps they need to recover. According to Hanning, he helped more than 500 clients following Sandy.

“I helped people with their insurance claims, but I also helped people find places to live,” Hanning says. “That’s not part of my job, but I’m a human being. I had people crying to me on the phone every day, asking me, ‘What do I do?’ I told them I would try and help them in any way I can. The fact that I went through Sandy with my clients, they understood that I was doing everything I could for them.”

Many of his neighbors and clients have rebuilt their lives better than before.

“My heart goes out to everyone in Houston, Florida, Puerto Rico, all who are going through this,” Hanning says. “It will get better, it definitely will. We’re proof of that. My town is back. They’ll be back, too.”

To request an interview with a financial professional about preparing financially around a natural disaster, please contact Sheila Bridgeforth.