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How to Help Clients Plan for Natural Disasters

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The increasing number and intensity of storms this hurricane season plus the raging fires in the West should serve as a wake-up call for advisors to discuss potentially catastrophic events with clients.

“Advisors should use these events to come up with practical pre-disaster/storm checklists and send them to every client,” says Jill Schlesinger, senior CFP Board ambassador and a former financial advisor. “Take advantage when this topic is top of mind for clients. Don’t wait to do this after the fact.”

The latter is tantamount to creating an estate plan after someone has died, says Schlesinger.

She spoke with ThinkAdvisor about what that checklist, including guidance and questions, should include.

Does the client live in a flood zone? If so, do they have federal flood insurance, and have they paid their bill? It could save them a lot of money in the future. Flood damage is not typically covered by homeowners insurance, and damage from just one inch of water can cost more than $20,000, according to the Federal Emergency Management Agency.

Federally insured mortgage lenders mandate that homes located in a high-risk flood zone have insurance coverage from the National Flood Insurance Program. There is no such requirement if a mortgage is paid up, so clients in flood zones may have let their insurance lapse, which was the case for some homeowners who suffered damage from superstorm Sandy, recalls Schlesinger. Her advice to them now: “Get it, it’s very cheap.”

Federal flood insurance may also be required for homeowners who live in a high-risk flood zone and have received federal disaster assistance in the past, according to FEMA. Its website also notes that there is typically a 30-day lag before coverage of the federal flood insurance policy takes effect, though that can be waived in emergencies.

Renters in flood zones are also eligible for federal flood insurance.

For more information, advisors and their clients should check out the FEMA website, which includes information on a state’s flood history, whether a town or city participates in the national flood insurance program and a visualization tool to see how many flooding events have happened in an area and how much disaster aid FEMA has provided in the past. The National Flood Insurance Program’s Help Center can also be contacted at 1-800-427-4661. “Having flood insurance provides a lot more help for recovery,” according to FEMA.

Does the client have on hand enough emergency reserves? Homeowners who don’t live in flood zone but may be close to one won’t be able to get federal flood insurance and may not be able to afford private flood insurance, if it’s even available. In that case, Schlesinger recommends they have on hand emergency reserves of 12-18 months, which is a lot more than the three to six, or six to 12 months that is typically recommended.

Does the client have pre-storm photos or videos of their home inside and out and a list of every item, date of purchase, approximate value and if possible receipts for those products?These will help homeowners and renters collect insurance on any damage from a storm or fire or other natural disaster.

Do they include in their emergency kit important documents such as a homeowners insurance policy, mortgage agreement, wills, deeds, estate plans, health care proxies, and last bank statement, mortgage statement, credit card bill and last year’s tax returns. Or have they stored such items in safety deposit boxes at banks or in storage units? In either case their emergency kits should have copies.

“A lot of people will be in big trouble come tax time if they don’t have tax documents,” says Schlesinger.

Financial advisors, lawyers and other professionals working with families may already have some of these documents but they, too, may experience storm damage, so additional copies on hand will help. Clients can burn copies of documents onto a disk or store in the cloud.

Schlesinger also has advice for advisors’ clients after a major disaster, advice that advisors can impart:

– Take another set of photos and video as soon as a storm hits and it’s safe to go home temporarily. Don’t move anything.

– Don’t start repairs before filing an insurance claim, receiving a claim number and reaching agreement with the insurance company on the cost of repairs. If it’s necessary to have a temporary fix, tell the insurance company about it.

– If you don’t like the estimate from an insurance company, try to negotiate. Many adjusters don’t take into account variations in regional costs for repairs.

– Don’t cash an insurance check if you haven’t agreed on the payment. You can’t negotiate after cashing it.

– Contact credit card companies, mortgage lenders and any other companies where payments are due immediately after a disaster. They might agree to a longer grace period for payments.

–Check for information that can help.

“It’s really important after a disaster that people try to gather their resources and their team of professionals that can help,” Schlesinger says. “A CFP knows everything that’s going on in client’s financial life and in the case of an emergency they can try to devise a plan to help them.”

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