As financial planners, our job is to help our clients prepare for the expected but more importantly, the unexpected. This can include anything from losing a job, suffering a sudden, debilitating health event, and even a natural disaster. As Portland financial planner, we are increasingly aware of the potential for a major earthquake.
For this reason, we asked the Red Cross to come in to speak to us about the Cascadia Subduction Zone located off the Oregon coast and their tips regarding preparation for this potentially devastating event.
Here’s why this future earthquake is getting attention:
- There is a 37% chance of an 8.0 or 9.0 earthquake in the next 50 years.
- A major earthquake in the Northwest occurs about once every 220 to 340 years with the last one being greater than 9.0 on January 26, 1700.
Most people think about stocking up on non-perishables and water, making sure they have an emergency kit and creating a plan for their family. Less attention is given to thinking through some of the financial planning risks associated with a natural disaster.
The American Red Cross, American Institute of CPAs (AICPA), and the National Endowment for Financial Education recently produced interactive guides to highlight several important steps to take in advance of a disastrous event. The Disasters and Financial Planning: A Guide for Preparedness and Recovery is available as a complete resource.*
Here are some of the most important takeaways.
1. Identify vulnerability and create a plan
Work with a professional or Red Cross volunteer to complete a disaster vulnerability assessment of your property. You should also create a family plan specifying supply inventory / location, evacuation routes, and method for communication. Be sure to review the basics such as identifying the emergencies most likely to happen in your area as well as determining a meet-up location.
Do you own or manage a business? Try the Red Cross’ Ready Rating questionnaire to measure your organization’s disaster readiness.
2. Create family contact plan
How will your family communicate with one another should cell phones and internet be down for the foreseeable future? How will you let family outside of the region know you’re okay and/or ask for help? Creating a family phone/email tree can be an effective way to figure out who’s in communication and who’s not. Identify a relative or family friend who lives out of state and make sure everyone in your family has the number memorized or written down somewhere. Memorizing a few important phone numbers can make a huge difference should you be unable to use your cell phone.
3. Protect your property by making sure that you have sufficient insurance and risk mitigation strategies
The biggest mistake people can make is not reviewing your insurance coverage in detail. It’s critically important to know what your insurance covers and what it doesn’t. Do you have replacement coverage? What kind? Think about additional insurance for specific disasters like earthquakes and floods.
Review ownership of your insurance policies, especially if held in a trust or limited liability company, which both add complexity to managing reimbursements.
Don’t forget to review your vehicle insurance as well. Pay attention to what is and is not covered by health, disability and life insurance policies.
4. Protect your cash flow
Take steps to protect your income, manage your debt and understand government benefits provided by FEMA. Review your policies regularly and make adjustments based on life changes like divorce and the birth of a new child. Understand your coverage specifics including the length and availability of benefits, whether or not they provide cost-of-living adjustments and if there are circumstances under which they can be canceled. Note that there may be certain income tax implications when receiving some of these benefits.
5. Claiming losses on your taxes
Casualty loss rules are a complicated part of the tax code. It may be prudent to ask your financial advisor or CPA to review your circumstances and help you identify which losses can be claimed. In general, losses are deductible if they exceed $100 in one year and more than 10% of your Adjusted Gross Income and must be documented. In addition, there are special loss rules that apply to federally declared natural disaster areas. Be prepared to document damage with photos and video.
6. Mitigate physical damage
Disaster preparation ranges from simple to complex. Installing latches on cabinet doors to keep them shut is an inexpensive way to protect your cabinets and their contents. Other measures like special foundation anchoring can cost thousands but may be a smart investment if it prevents your house from collapsing.
There are special loan programs available for disaster prevention if you are completing a major project. In addition, state and federal agencies offer financial assistance programs that may be helpful.
7. Ensure your estate planning is up to date
Estate planning is clearly important when thinking about natural disasters. Your Will and/or Living Trust, Power of Attorney, Healthcare proxy, Living Will and beneficiary designations should all be in place and regularly reviewed.
8. Protect your records
Decide on a safe place to store your most important documents and tell your family where to find them. These documents may be necessary for you to file insurance claims, take care of injured family members, and everything else that you need to do post-disaster. These are likely to include:
- Birth, death, and marriage certificates
- Will, Power of Attorney, Living Will, and other medical documents, Trust documents
- Social Security card/records, medical records, insurance policies
- Tax documentation
- Titles to vehicles, property, rental agreements/leases and warranties and receipts
Store originals of vital documents (passports, deeds, and birth certificates) in a bank safe deposit box. Be aware that courts will temporarily seal a safe deposit box upon the holder’s death so make sure your attorney or someone you trust has a copy of your Will.
Store duplicates in secure cloud storage along with a list of account numbers and access codes.
9. Get your Disaster Recovery Score
Want to know quickly how you stand? Take the Disaster Financial Recovery tool to get your DFR Score.
The DFR Score is a tool created by Operation Hope to check your level of preparedness to recover financially from a disaster or personal emergency. There are 10 short questions to help you determine your personal DFR Score as well as a Personal Action Plan to help you improve your ability to recover faster from a disaster.
Proper planning can help relieve some of the stress as you’re putting your life back together after a natural disaster. In fact, many of the steps outlined in this post are helpful reminders in general.
Don’t hesitate to contact us if you have questions or need help getting started.