Your Thriving Practice

When Mother Nature strikes

Steps to help clients financially weather storms

It seems every time you turn on the news, there’s another environmental disaster looming. Floods, hurricanes, wildfires, excessive cold and more are happening with greater frequency. And they’re growing more costly. Between 2018 and 2022, the U.S. experienced 89 billion-dollar events, and extreme events cost the U.S. close to $150 billion each year.1

As we’ve seen, disasters like these can strike at any time, often with little warning. Residents may have days — of even just minutes — to get to safety. And the effects on financial security can be felt not only immediately following the event, but in the long term.

“Planning is crucial as it allows for proactive measures to mitigate losses and expedite recovery.”

While no one can control Mother Nature, you can help your clients take steps to better protect themselves before, during and after an event occurs to ease recovery and keep their financial futures on track.

“Planning is crucial as it allows for proactive measures to mitigate losses and expedite recovery,” says Don Wede, President, Heartland Funding Inc., a real estate investment company. “It offers peace of mind, knowing that preparedness efforts enhance safety during disasters, minimize property damage and facilitate a quicker return to normalcy.”

While skies are clear

Before a disaster is even on the horizon, individuals can take time to identify and organize what they own, assess their protection, and be ready to respond if the worst happens.

Build an emergency fund. Work to build a safety net of 3 to 6 months of expenses to pay for food, water, clothing, and temporary housing until insurance claim payments for covered losses kick in. Federal relief funding may be available for losses that aren’t covered by insurance. It’s important to advise clients to check eligibility and limitations for relief funding in their areas.

Inventory belongings and protection. First, clients should catalog what they own. A room-by-room inventory can make it easier to document losses during the claims process after a storm or disaster. A phone, tablet, or even a simple spreadsheet will work for this record. Next, review insurance policies to make sure coverage is up-to-date and reflects changes or upgrades to homes or personal property. Depending on their location, clients may want to consider additional coverage such as flood or wind insurance.

Safeguard information. Encourage clients to save copies of vital financial documents—insurance policies, deeds, wills, account information—in the cloud, on external drives or as off-site paper copies.

In the eye of the storm

Stay informed. Stay safe. Personal safety is the priority. Stay informed through local alerts and communicate with family, neighbors, and authorities, as necessary. If clients are evacuating, they should secure loose items on their property, unplug appliances, and turn off gas and electricity to avoid further damage. It’s also important to keep track of expenses incurred during the storm or evacuation as it may be necessary for insurance claims or tax deductions later.

Report, rebuild, recover

Once authorities deem it safe for clients to return to their homes, they should identify losses and contact insurance companies right away. You can guide clients to explore other resources for assistance during recovery.

Talk to financial institutions. These institutions may postpone loan payments or waive fees for a time after a disaster. Advise your clients to inquire about any such policies to minimize the strain of recovery.

Consult a tax professional. Advise clients to visit a tax professional to understand potential deductions or credits available for disaster-related losses or expenses.

Explore emergency relief. FEMA and local organizations may provide disaster relief and resources.

Consider retirement savings carefully

As you may know, the SECURE 2.0 legislation2 passed in 2022 allows clients to take distributions of up to $22,000 from their tax-qualified retirement plans or IRAs to pay for damages experienced in federally declared disasters after July 26, 2021. (This provision is retroactive.) Withdrawals made within 180 days of the disaster will not incur the federal 10% IRS early withdrawal penalty, but any state tax penalties may apply. Individuals are eligible to repay (rollover) the declared disaster distributions within three years. While recipients must pay tax on the distribution if not repaid, they can spread the taxable income over three tax years.

While clients may view this option as a useful source of funds, financial professionals may want to educate clients on the potential impact that taking money out of the market could have on their long-term financial goals. In fact, this may be a good time to review clients’ overall financial plans and help address any new post-disaster challenges to ensure clients remain on track moving forward.

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