12 Jun Top 6 Ways to Prepare Your Finances for a Hurricane
It’s hurricane season again and there is a lot to think about and do to prepare in the event that a storm takes aim at the Lowcountry. From gathering supplies, to understanding evacuation zones and routes, to preparing your property, there are many tasks to be completed when a storm is imminent. There is also a lot that needs to be done involving your finances. Here are some steps you can take before a storm is forecasted to ensure your money is well prepared.
1. Homeowners Insurance
Now is the time to review your insurance policies. You will want to make sure you have adequate coverage on your homeowner’s policy. Your dwelling coverage amount needs to be adjusted periodically for inflation or if you have made renovations that have increased the value of your home.
Make sure you understand how much your deductible is on your homeowner’s policy and make changes if necessary. A deductible is the amount of money you pay out of pocket before insurance will pay for any of the loss. Understanding how much money you will need to pay before insurance begins to pay will help you plan for how much cash to have set aside.
Living in a state prone to hurricanes, it is likely that you have two different deductibles. The first is the standard deductible, which covers perils such as fire and theft. The standard deductible is typically a flat dollar amount. The other deductible is a hurricane or named storm deductible. The details vary from policy to policy, but this deductible would come into play for any damage your property sustained from a named storm. These deductibles are typically expressed in the form of a percentage of the dwelling (“Coverage A”) that you carry on your policy. It is not uncommon to see hurricane deductibles as high as 10% of the amount of your dwelling coverage. For example, a home with $500,000 in dwelling coverage and a 5% hurricane deductible would mean you have to pay $25,000 toward repairs before insurance would chip in at all in the event of a hurricane.
It’s important to understand the details of your policy and how much you could be on the hook for if a hurricane impacts your home. If covering your deductible would be difficult for you, you may consider changing your policy. However, a lower deductible will cause your premium to rise. Your financial planner can help you evaluate your current policy and your insurance needs.
2. Flood Insurance
While certain homeowners’ policies cover water damage resulting from the rupture of a system or freezing of pipes, all homeowners’ policies exclude coverage for damage from floods. Depending on where your home is located, flood insurance may or may not be required. Just because you may not be required to have flood insurance does not mean that you won’t need it. Flood insurance is not just for those who live very close to a body of water. Look no further than the devastation rain from Hurricane Florence caused to parts of North Carolina and South Carolina. People well inland suffered from damaging floods in addition to those on the coast.
Flood insurance can be purchased through the National Flood Insurance Program or through a private market insurance provider. Both have limitations, so be sure to read the policy thoroughly to ensure you are adequately covered. For most flood policies there is a 30-day waiting period, so if you think you might need coverage, you will want to act fast. Don’t wait until a storm is already in the forecast because it will be too late.
3. Adequate Emergency Fund
Before a storm hits, make sure you have enough cash set aside in a savings account to help you get through a major storm. Knowing how much your deductibles would be for both homeowners and flood insurance is a good place to start. You may need more than that as your living expenses could increase for a period of time and you will have to purchase supplies.
If you live in South Carolina, you may be able to take advantage of a Catastrophe Savings Account. You must be a resident of South Carolina who owns a single-family home that qualifies as your legal residence. Up to $2,000 can be contributed if the deductible on your homeowner’s insurance is $1,000 or less. If your deductible is more than $1,000 you can contribute up to twice the amount of the deductible up to $15,000. These accounts cannot be invested. A Catastrophe Savings Account can be opened at any state or federally charted bank and must be titled as such. You can deduct the amount that your contributed from your South Carolina state income tax for the year the contribution was made. The money in your Catastrophe Savings Account must be used to pay insurance deductibles or uninsurable expenses resulting from a storm. If you do use the funds for unqualified expenses, you will have to pay South Carolina income tax and a 2.5% penalty on the amount that was used. These accounts can be useful to get a small tax benefit and make sure you always have some money set aside for repairs if needed. As always talk to your financial planner or CPA before opening a Catastrophe Savings Account.
If a storm strikes your area you will want to have cash on hand. Be sure to stop by an ATM or get cash back while you are buying supplies to prepare for the storm. If there is a power outage, you will not be able to use your credit or debit cards and cash will be your only option to buy anything after the storm passes.
5. Beware of Scammers
Post storm, there will be people who take advantage of the situation and try to scam those devastated by the hurricane. There are a couple of common scams that are seen after every storm. First, scammers will say they are with FEMA or another government agency and charge for inspection services that would otherwise be free. Always ask to see a credential or badge for someone claiming to be from a government run agency. A jacket or a shirt is not enough.
Home repair scams are also common. Make sure you hire someone who is licensed to do any repair work on your home. Get quotes from multiple local contractors. Pay in installments as the work is finished, don’t pay the full amount up front. Do not pay them in cash, use a check or credit card, so you create your own record of payment. Be cautious of anyone who comes to your door, especially if they are trying to get you to pay for something.
6. Important Documents
Take the time now to make photocopies and electronic copies of important documents before a storm is on its way. Insurance, medical, financial documents are all a good to have as well as personal documents such as social security cards. Keep them in water tight containers in a secure location like a safe or portable lock box. Take photos and video of your belongings and home and store them in the cloud. This will help you provide proof to the insurance company if you need to make a claim. Video is best as you can narrate to describe the items, their quality and how much they are worth. Make sure you reevaluate annually as you acquire or get rid of items and make updates to your home.
These are some of the steps that you can take to prepare your finances before a hurricane is in the forecast. Ensuring that you understand your insurance policies, have enough cash to get through the storm and pay your deductibles as well as safeguarding your important documents will make the storm a little less stressful for you and your family.