4 Ways to Avoid Financial Ruin from a Natural Disaster

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The US has experienced a record number of weather and climate disasters in recent years – including the recent tragedies of Hurricanes Helene and Hurricane Milton – and the worst time to think about your money is after a disaster.

“Many people underestimate how quickly costs can add up – from temporary housing to replacing damaged items – and that this can lead to financial hardship,” said Lewis Garvin, corporate communications manager at PenAir Credit Union. “Even saving a small amount regularly can accumulate over time and provide a safety net for unexpected events.”

GOBanking Rates spoke with Garvin and other experts to find four ways to avoid financial ruin from a natural disaster.

Plan ahead

Planning could save you a lot of hassle and the risk of financial ruin after a natural disaster.

“Thinking that this can’t or won’t happen to me is one of the most common mistakes we see,” said Michael Silverman, founder and president of Silver Lining Insurance Agency. “If you plan for a disaster of any kind, the disaster can be mitigated from a financial perspective.”

Silverman recommended knowing in advance what resources are available in the worst-case scenario.

“Does your insurance cover the eventuality that you can no longer live in your apartment?” he said. “Disasters must be planned in order to be dealt with. We suggest everyone have a plan that includes a contact list and where documents will be stored in case they are needed and cannot be accessed on paper.”

Find out what your insurance policy covers

In the event of a natural disaster, take photos and document any property damage for insurance claims. Contact your insurer as soon as possible to begin settling your claim.

Stay prepared by reviewing your insurance policy every year to understand what your policy does and does not cover. “For example, most people think they are covered by flood and wind insurance during a hurricane, even though they are not,” said Peter McMurtrie, partner at West Monroe Insurance Practice.

“If you don’t have flood insurance, ask yourself if you’re comfortable with that decision,” McMurtrie said. “Just because you’re not in a flood zone doesn’t mean you don’t need it, as we’ve seen in recent days and years. Understand the cost of flood insurance and consider whether the peace of mind it brings is worth the investment.”

Manage your money

Try to have at least three to six months of living expenses available in an easily accessible account to cover unexpected costs such as temporary housing, repairs, or loss of income.

“Enroll in digital banking and ensure you can access your accounts remotely through online and mobile banking platforms,” Garvin said. “This will be crucial when physical branches are closed or ATMs fail.”

He also recommended keeping cash on hand and storing important documents such as identification, insurance policies, property titles and bank account information in a waterproof, fireproof safe.

“During power outages, having enough cash to cover essential expenses can be a lifesaver since ATMs and card readers may be offline,” Garvin said. “Create digital copies of important documents and store them securely online as a backup. It’s a good practice and resource in case a storm hits.”

Maximize your tax benefits

If you live in a federally declared disaster area, you may be eligible for tax extensions and tax relief.

Taxpayers living in a federally declared disaster area are eligible for filing and payment extensions as well as casualty loss deductions, said Mark Luscombe, senior federal tax analyst at Wolters Kluwer.

“If the property is personal use property or is not destroyed, the amount of casualty damages will be the lesser of the property’s adjusted basis or the decline in the property’s fair market value as a result of the casualty.”

In the case of business or rental properties, the amount of loss is the adjusted basis less any residual values, insurance or other reimbursements you may receive, Luscombe said.

“The deduction can be claimed in the year in which the loss occurs,” Luscombe said. “To receive a faster refund, the refund can also be claimed the year before, including by filing an amended tax return.”

Finally, Luscombe recommended checking whether your employer’s pension plan allows penalty-free withdrawals in the event of hardship or emergencies.