How to financially prepare for a natural disaster

Climate change has made natural disasters more prevalent and devastating in recent years — and more costly. Losses from floods, hurricanes, wildfires and other catastrophes rose 257% between 1983 and 2023, according to Pew Trust analysis of data from the National Oceanic and Atmospheric Administration.

Between January and August 2024 alone, there were 19 climate-related events that caused more than $1 billion in damage each, according to the National Centers for Environmental Information.

While there's not much you can do to prevent a flood, hurricane or wildfire, there are ways to prepare for their impact on your finances.

No one wants to think about a catastrophe, but being prepared can make a big difference when the worst happens. Here are three steps to take before a natural disaster.

Make a home inventory 

Renters insurance or homeowners insurance can cover repairs and replacements after a covered event. Before disaster strikes, make a list of your possessions, especially anything valuable. It can be as simple as a video walkthrough of your home, noting when certain items were purchased, the price and other relevant details.

Not only will a home inventory help you file a claim, but it should also give you a good idea of how much personal property coverage you need to have.

Of course, it doesn't help if your inventory is destroyed in a fire or flood, so keep a copy of it— and other important documents — in a fireproof lockbox or at another location. You can also store digital copies on the cloud or a USB drive.

Make sure you have adequate insurance  

Your homeowners policy should cover damage to your home and belongings, and pay for additional living expenses if you need to relocate. You should also consider additional coverage for detached structures, like a garage or shed, as well as scheduled coverage for valuables like jewelry or fine art.

A standard home insurance policy won't cover every disaster, however: Flood damage, for example, is excluded under most plans. You'll need to buy flood insurance, either through the National Flood Insurance Program (NFIP) or from a private insurer.

Available in almost every state, Neptune Flood Insurance offers add-on coverage for basements and swimming pools.

We also like Beyond Floods Flood Insurance for its high coverage limits for dwelling and contents coverage.  

Build an emergency fund

"Everyone should have an emergency reserve," says Jaime Eckels, a certified financial planner at Plante Moran Financial Advisors.

Eckels' rule of thumb for an emergency fund is to save between three and six months' worth of expenses, but some people will need to set more aside.

"If you live in a disaster zone, where you're more likely to have hurricanes, tornadoes or other events, you should have larger cash reserves," she said.

A high-yield savings account can grow your fund faster while still being readily available. We like LendingClub LevelUp Savings and UFB Portfolio Savings — both have competitive APYs and no minimum balance requirements.  

The aftermath of a calamity is a stressful time, but keeping a clear head and following these guidelines can see you through.

File the proper claims 

If you need to make repairs to your property or replace some belongings, contact your insurance company as soon as possible to file a claim.

"Figure out exactly what's covered and what you're going to be required to pay out of pocket," says Eckels.

You'll need documentation of the damage, so take photos and video. And look at your policy's declarations page to find out your deductible, or the amount you're responsible for before coverage kicks in.

In some states, hurricane and windstorm damage is subject to a different deductible — often a percentage of the home's insured value, ranging from 1% to 10%.

Look into government programs and public assistance  

There are numerous resources available for victims of a natural disaster, from federal programs to community groups. Here are a few to start you off:  

• Federal Emergency Management Service (FEMA) provides money and services to qualified individuals and families who have suffered damage to their home, car or other property as the result of a presidentially declared disaster. The agency can also help with childcare, medical expenses and clean-up items. You can find a current map of areas declared disaster zones and an online application for aid at DisasterAssistance.gov.

• The Small Business Administration offers loans to repair or replace primary residences and belongings, even if you don't own a business. Homeowners, renters and business owners affected by a disaster can apply through the Small Business Administration website.
  
• Your state's emergency management agency should be able to direct you to local resources and funding. Find your office on USA.gov's national directory.
  
• The Red Cross offers housing, clothing, food and other support to those impacted by disasters. The Red Cross website also has a resource directory of other local groups.

Federal student loan borrowers can apply for a natural disaster forbearance, which can pause or reduce loan payments for up to 90 days, though interest still accrues. For other debts, contact your lenders to see what options are available.

Decide if you need to tap other resources 

Using your emergency fund to cover insurance deductibles and other costs can protect your investments. If you have to tap other resources, Eckels says, it's best to look at accounts that won't incur penalties.

"The next step after an emergency reserve, ideally, would be an after-tax brokerage account," she says. "You're not paying any type of penalty to take money out of there to help pay for those expenses. And you can rebuild it once you get everything settled." 

If that's not available, a Roth IRA is the next best option, Eckels says.

"Any time you take out the contributions into the Roth IRA, it comes out tax- and penalty-free," she added.

Tapping into your account should be a last resort, however, as there are limits on how much can be put back in later.  

At CNBC Select, we work with experts who have specialized knowledge and authority based on relevant training and/or experience. For this story, we interviewed Jaime Eckels, a certified financial planner at Plante Moran Financial Advisors in Auburn Hills, Michigan. She has been in the financial planning industry for 25 years.  

At CNBC Select, our mission is to provide our readers with high-quality service journalism and comprehensive consumer advice so they can make informed decisions with their money. Every insurance review is based on rigorous reporting by our team of expert writers and editors with extensive knowledge of insurance products. While CNBC Select earns a commission from affiliate partners on many offers and links, we create all our content without input from our commercial team or any outside third parties, and we pride ourselves on our journalistic standards and ethics. See our methodology for more information on how we choose the best insurance.

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