September 19, 2011

Building a Personalized Disaster Plan for Clients: Pt. 2—The 4 Big Post-Disaster Dangers

As a follow-up to my previous article on Personalized Disaster Planning, in this article, the second of three on the topic, I will address four main issues of concern in building such a plan and the possible effects of not having a disaster plan in place. 

Danger No. 1: Getting Down to Basics

Even before you help your clients financially, the most important concern in a disaster plan has to be as simple as the basic necessities of life: food and water. Like so many natural disasters we’ve seen in the last few years, it’s very possible that following a disaster, many people will be stranded for days in need of food and water. So the obvious possible effects could be starvation, dehydration, extensive medical issues or even death. Therefore, the highest priority for your clients to understand is the need to create a disaster supply kit within their personalized disaster plan. The Federal Emergency Management Agency website is a great resource for disaster planning and has a great summary and detailed education for creating and maintaining a disaster supply kit.     

Danger No. 2: Addressing Identity Theft

One of next issues of concern is identity theft. While most would agree that a natural disaster doesn’t have to occur for identity theft to be an issue, no one can deny the increased exposure such an event creates. What if your client’s driver’s license, tax return, Social Security number, date of birth, credit card statement or even checkbook is blown across town by a tornado? What stops someone from picking up a Social Security number and stealing the identity of your client? While the client is trying to clean up the devastation and rebuild, a $2,000, $5,000 or larger bill is adding up on their credit card by someone pretending to be them. 

What about the possibility of someone breaking into your client’s online investment account if they have the account number or most recent statement?  Or someone calling a major brokerage house and pretending to be your client?  Who is going to keep the protection of your clients’ investments from an identity theft hacker? How do we recommend our clients fix this issue, especially if they can’t even prove their own identity?   

Whether any of these situations happens or not, your clients surely needs to be aware of the risks that identity theft can have on their financial situation. A very informative website I highly recommend for  your clients is www.identitytheft.info.  As they will see, over 15 million Americans have their identity stolen each year, resulting in financial losses of some $50 billion. This website discusses varying types, prevention, protection and recovery from most all identity thefts issues. 

Danger No. 3: Dealing With Insurance Claims

A third concern that will affect anyone involved in a disaster situation is the claims and rebuilding process. While insurance coverage is a necessity, I have found most clients do not understand their coverage. The differences in wind, water, flooding or hurricane coverage options in policies can be very confusing, especially when reading the legal language in policies; but please advise your clients that the cheapest option is generally not the best.

The most important thing to know about insurance coverage is “Will the company pay the claim when you need them to?” Therefore, I highly recommend sending your clients to the following sites: JD Power Homeowner Insurance Company Rankings, National Association of Insurance Commissioners (NAIC) and The American Association for Justice “10 Worst Insurance Companies” to see if their coverage will be more about litigation than rebuilding come the next disaster.      

Danger No. 4: A Death in the Family

The fourth area of concern is the death of a family member. While such an occurrence is highly emotional in and of itself, when you add in the loss of a house, car, clothes, food, job, and items such as family heirlooms and photos from the effects of a disaster, and the emotional toll can be overwhelming. For most people, just trying to clean up, determine where to live in the short-term, and then rebuilding, is enormous. Compound that with the task of probating a family member’s will or just trying to find out if there is a will and it can be more than most people can handle. 

Such events create more questions than answers. What assets does the family still have? Did the storm revalue those assets overnight? Do the insurance claims have to be filed after the probate process starts for those damaged assets owned by the deceased? Is the claim check paid to the estate of the deceased? Does the will cause family issues of inequality for one family member that was deemed to inherit property outright, which is now completely demolished, while the other family members inherited all cash? Do we even have the deeds, titles or a summarized listing of all the assets owned before disaster has taken its toll? 

Issues of concern with the death of a family member can feel endless and are very emotionally charged. Therefore, not only does disaster planning include disaster supply kits, identity theft protection and insurance coverage prudence, but estate and wealth transfer planning with all the associated legal documents. This is a vital part of personalized disaster planning, because at the end of the day, any sudden death is a disaster to the family. 

If most advisors help plan and manage clients’ portfolios as it relates to a client’s goals and objectives, the need for risk management shouldn’t stop at the investment portfolio. A dialogue with your clients explaining that the financial planning process is a form of personalized disaster planning is a differentiator for sure.  If there is never any discussion related to risk management, the question becomes this : What is the true risk exposure of your client’s whole portfolio when calculated for a real disaster situation?  Risk management involves not only a client’s portfolio risk, but the risk of their changing life situations, such as future income or principal needs from their portfolio. Therefore, the better you as an advisor manage the risk of a personalized disaster situation for clients, the better you indirectly manage the overall risk to their financial position. 

In my last article in this series, I will look at providing simple. achievable recommendations for helping your clients achieve their own personalized disaster plan. 

See all three blog postings by Andrew Rice on how to build a personalized disaster plan for clients.

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