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    Five Steps to Limit the Financial Damage from a Natural Disaster

    A major earthquake in Alaska. Devastating wildfires in California. It was a busy final few months of 2018 for natural disasters in the United States, punctuating another year of costly losses of life and property, and providing Americans with a billion-dollar reminder of just how important it is to take steps in advance to prepare and protect their assets from the calamitous climate, weather and natural events that are battering the U.S. and other countries with increased regularity.

    Globally, the frequency of natural disasters — earthquakes, storms, floods, drought, etc. — has quadrupled since 1970, to more than 400 per year, reports PreventionWeb, an arm of the United Nations Office for Disaster Risk Reduction. And the U.S. is consistently among the hardest-hit countries. For example, the epidemic of wildfires that swept through parts of Southern California last summer and fall are expected to result in total economic losses approaching $400 billion, according to AccuWeather, making it the most expensive natural disaster in U.S. history.

    If you’re among the millions of people who live and work in areas that are susceptible to natural disaster, the choice is simple: prepare ahead of time to protect your assets, both tangible and intangible, or live with the very real risk of losing things you cannot afford to lose, with little recourse for replacing them. Because while you may not be able to escape a natural disaster, you can take steps to limit the damage, financial and otherwise, that it inflicts upon the things you value. Those steps include:

    1. Maintaining a thorough, up-to-date inventory of your home and its contents. This is mostly to document your personal property in case it’s damaged or destroyed and you need to make an insurance claim to replace it or recoup its value. Anything of value — electronic and computer/home office equipment, furniture, jewelry, etc. — should be logged in the inventory. Be sure to include serial number, purchase price, model number and the like, or if those don’t apply (such as with a piece of jewelry, or a one-of-a-kind piece of art or antique furniture), a detailed description of the item and its origin. Support that with video or still photographic images of all the items on the list and capture the layout of the house from outside in, in case the house needs to be rebuilt. Keep multiple hard and digital copies of the inventory, including at least one away from the home.
    2. Storing originals of key documents and valuables remotely. One-of-a-kind documents like passports, birth certificates, marriage license, previous-year tax returns, titles to your home and vehicle, etc., are best stored off-site at a bank safe deposit box. You might also use the box to store smaller valuables such as jewelry.
    3. Keeping a current digital record/inventory of all accounts and important documents, and storing it off-site AND in the cloud. Build a single digital repository to house digital copies of the aforementioned one-of-a-kind documents (passports, birth certificates, etc.). Scan those documents to convert them into digital files, and keep the digital files in the repository, along with information on all your financial assets, credit cards, investment accounts, retirement accounts, insurance policies, bank accounts (checking, savings, etc.), loan/mortgage accounts, previous-year tax returns, business assets, real estate holdings, will, powers of attorney and other estate documents, and more. For each account in the inventory, include the institution that holds it, the account number, online user IDs/passwords, value of assets in the account, beneficiary information — any relevant information that you (or someone close to you) may need to access. Keep hard copies at home and off-site, such as in a safe deposit box. Also make an electronic copy of the inventory and keep that file not just on your computer but in the Cloud, where you can access it if something happens to your computer.

    To help organize it all, FPA member Monica Dwyer, a CERTIFIED FINANCIAL PLANNER™ (CFP®) professional with Harvest Financial Advisors in West Chester, Ohio, recommends using a digital repository tool such as Everplans (www.everplans.com), which provides a secure digital archive of all the above and allows you to share that archive with people of your choice.

    1. Ensuring you’re covered with insurance — the appropriate type, in the appropriate amount. For its ability to protect the value of your assets (if not the assets themselves) should they be damaged or destroyed in a disaster, insurance is a must, says Dwyer. Essentially, insurance is designed to reimburse the policy owner for the value (full or partial, depending on what’s stipulated in the policy) of the insured item(s). Homeowner’s insurance thus compensates the homeowner when the home or its contents are damaged or destroyed. Renters insurance does likewise for people who rent their home.

    For people who live in disaster-prone areas, the coverage shouldn’t end with homeowner’s insurance. Dwyer recommends backstopping homeowner’s insurance with other forms of property-casualty insurance that are appropriate to the type of disaster risk you and your property face, whether that’s flood insurance in flood-prone areas or fire insurance, earthquake insurance, etc.

    With any insurance that you purchase, Dwyer suggests a policy that reimburses claims for the full replacement value of the assets, not just it’s actual cash value (the replacement cost minus depreciation). If your home and its contents are destroyed by fire, for example, you want to be reimbursed in amounts that cover the cost to replace them with a new home and new like-kind items.

    1. If you own a business, taking extra protective measures. Steps 1-4 above also apply if you own a business or a stake in a business. That holds true for key documents (such as partnership agreement, corporate operating agreement and bylaws, etc.), accounts (bank, retirement, etc.), hard assets (building, product inventory, etc.) and intangible assets, such as critical business data (employee info, financial records, customer and inventory data, etc.). Likewise, be sure all this key information is stored digitally in the Cloud, and that where possible, physical copies are stored offsite as well.

    Consider developing a business continuity plan that includes employee contact information, information about backup vendors/suppliers, communications protocols with staff, and what-if procedures for handling key business processes and payroll should disaster strike.

    Your business assets also need to be protected with insurance. Make sure you have insurance that covers the type of damage your business may encounter from a disaster, such as wind or water, and that you have enough coverage to return your business to operation post-disaster. Also consider business interruption insurance, which covers lost income due to a disaster-forced shutdown.

    A financial professional can provide valuable guidance on insurance and other financial aspects of disaster preparedness. To find one in your area, visit the Financial Planning Association’s searchable database of CFP® professionals at www.PlannerSearch.org.

    January 2019 — This column is provided by the Financial Planning Association® (FPA®) and FPA of Iowa, the principal professional membership organization for Certified Financial PlannerTM (CFP®) professionals. FPA seeks to elevate a profession that transforms lives through the power of financial planning. Through a collaborative effort to provide more than 23,000 members with tools and resources for professional education, business support, advocacy and community, FPA is the indispensable resource in the advancement of today’s CFP® professional. Please credit FPA of Iowa if you use this column in whole or in part.

     

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