FIRST THINGS FIRST:
Property and casualty agents are usually overwhelmed when major disasters strike. As a Financial Planner, I can guide you through the initial steps. Below is a starting point:
- Make only the repairs needed to prevent further damage such as covering holes in the roof. The insurance adjuster will need to see the damage, so don’t make extensive repairs or get rid of damaged high-price items. Take plenty of pictures.
- Save all receipts for replacement housing including food costs, additional costs for transportation, and storage expenses. You may be eligible to receive an advance from your insurance company for these expenses.
- Make a list of the damage as soon as possible. It may be helpful to draw a floorplan of the home to help recall what filled the space.
- File the claim as quickly as possible and document all interactions with insurance companies, FEMA, or anyone else related to helping with the disaster.
HELP WITH DAMAGE EXPENSES:
If the damage from a storm is from the roof down, homeowner’s coverage applies. However, if the damage is from the bottom up, such as the floods in Texas, only flood insurance will pay. The National Flood Insurance Program provides basic coverage of up to $250,000 for building property and up to $100,000 for contents. Most people do not buy additional coverage.
If your losses are not covered by insurance, other help might be available. If the area has been deemed a federal disaster by the president, you may be eligible for federal disaster relief – www.disasterassistance.gov is the go-to area to research and apply for aid.
If you own a small business that has been affected by a disaster, the U.S. Small Business Administration provides low interest disaster loans in declared disaster areas. The application is completed online.
IMPORTANCE OF HOME EQUITY LINES OF CREDIT:
If you do not have liquidity to deal with emergencies, a home equity line is one avenue to obtain needed cash. However, a home equity line will not be approved if a home is already damaged or under repair. We encourage all clients without resources to rebuild to have a home equity line available in the event of a major disaster.
Planners can help our clients tap other cash resources such as borrowing from retirement plans or cash value from life insurance policies. If the situation is dire, a GoFundMe account can be established to help.
Often forgotten are the tax ramifications. People who live in major disaster areas may be eligible to delay tax filings and payments without penalty. The IRS automatically identifies the people in these areas. If you were affected but live outside the designated areas, you need to call the IRS to request tax relief.
Keep all records of costs related to the disaster, as these can be claimed as a casualty loss on the tax return.
If there will be a significant casualty loss, make sure you have the income to offset the loss during the tax year. This may be one area where premature distributions from retirement plans are warranted, as the casualty losses offset the taxes from the distribution. Additionally, Congress sometimes enacts special legislation that allows withdrawals from IRA funds without paying the 10% penalty.
Disasters are horrible, and ideally we try to prepare in advance. Even the best preparation doesn’t cover everything, and my goal as a Financial Planner is to help you recover after these catastrophic events.
Published by Carolyn McClanahan, August 28 2017