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The key to financial emergency preparedness is proper planning. You need to take stock of your income streams — such as an annuity, 401(k) or IRA plan, a salary or other source — budget appropriately and prepare for the unexpected.

Financial emergencies can happen to anyone, and without a plan, you may find it difficult to bounce back from damages. In turn, this could put your credit score at risk and even cause you to file for bankruptcy.

We hope disaster never strikes — but in today’s climate we also know nothing is guaranteed. So why not do a little legwork upfront to ensure you’re financially healthy no matter what? Here, we cover what to do with your finances before, during and after a disaster to ensure you’re protected.

Before a Disaster: How to Prepare

Multiple recent studies have shown that Americans are woefully underprepared for disasters and the sudden expenses that often come with them:

  • Approximately 40 percent of Americans have no plan for handling an emergency.
  • Only 16 percent of Americans have an emergency preparedness kit.
  • About 55 percent of Americans worry about an unplanned financial emergency.
  • Four in 10 Americans would be unable to cover an unexpected $400 expense.
  • Six in 10 Americans would be unable to cover an unexpected $1,000 expense.

Unplanned Financial Emergency Graph

Rarely do people regret being too prepared — it’s the opposite that’s all too common. To ensure you and your family don’t fall under the statistics above, consider taking the time to set up a few things now.

Set Up Direct Deposit

If a disaster does strike, you may not be able to leave your home or travel very far. If you’re in the workforce, contact your employer to set up direct deposit. This will ensure you get paid even if you’re unable to make it to the bank. It also reduces your risk of check fraud or lost checks and gives you immediate access to your money, which may be important during a disaster when many are under financial strain.

Build Up an Emergency Savings Fund

Furloughs and layoffs are common during disasters as companies look for ways to cut costs and stay afloat. It’s important to have a cushion that can supplement your income — or replace it, in the worst-case scenario.

If possible, aim to save six months of income so you can continue to cover essential costs while you search for a new job. If you can only set aside three months of income, that’s still a great start. Even if you never find yourself in a disaster situation, having a solid emergency fund can help cover other unexpected costs like car repairs.

In retirement, an emergency savings fund is important so that you don’t have to dip into your 401(k), IRA or other income source to cover costs. How much you’ll need depends on how much you spend each month on housing, food, utilities, transportation, health care and other expenses. Retirees should aim to save enough money to cover eight to 12 months of expenses.

The most important thing to consider is that emergency funds should be easily accessible. Consider a high-yield savings account for better interest rates and easy transferability to your checking account.

Consider Appropriate Insurance Coverage

The purpose of insurance is to cover you in case anything bad happens. It’s an important part of financial emergency preparedness and you’ll be glad you invested in it if a disaster ever strikes. If you’re a homeowner, you likely already have an insurance policy.

Consider reviewing it, taking into consideration the following:
Flood Protection
Many policyholders are surprised to learn that standard homeowners insurance policies don’t contain flood coverage by default. If your area is prone to flooding, look into adding flood protection to your policy.
Renters Insurance
If you’re not a homeowner, you may think you’re covered under your landlord’s homeowners insurance policy. While this is true for the structure of the home, it doesn’t cover your belongings. That’s where renters insurance comes in. At just $20 or less each month, it’s a worthwhile investment.
Auto Insurance
In addition to collision insurance, consider comprehensive car insurance, which will cover your vehicle from the most common natural disasters, including floods, fire, hurricanes and earthquakes. It’ll also cover you in case of smaller-scale damages that are out of your control, like a tree falling on your car.
Life Insurance
Life insurance covers the unlikely occurrence of death via natural disaster. It can help your family pay off debts and cover housing payments and living expenses in the event of your death. It is an important part of your financial emergency preparedness plan.

It may be tempting to cut corners on insurance now in order to save money, but investing in the right coverage will save you much more if you ever need to file a claim.

Document Valuables

Create a thorough home inventory that includes everything in your home, from furniture to kitchen appliances to clothing. Even if you don’t have any big-ticket items, the cumulative value of your belongings can add up quickly.

Home insurance is designed to protect not only your physical home structure, but also all of the belongings inside. If you ever need to file a claim, having documentation of your belongings — including photos, descriptions and estimated value — will make the process go more smoothly.

Compile Physical Copies of Important Documents

We live in a digital age, and it’s all too easy to store your important financial documents online. Back up tax returns, insurance information, receipts and more via a cloud storage system so you can access them from any device — but make sure you have physical copies, too.

In the event of a natural disaster that causes you to lose power or internet access, you’ll need paper versions of your documents kept safe in a fire-proof, water-proof container.

Locate and print out the following, if applicable:

  • Insurance policies and professional appraisals
  • Deeds and ownership forms
  • Passports, identification cards, birth certificates and adoption papers
  • Social Security cards
  • Medical information, including immunization records
  • Marriage certificate, prenuptial agreements, child support and alimony documents
  • Power of attorney papers
  • Living will and last will and testament

Important Documents to back up graphic

Keep these papers somewhere easily accessible to ensure you take them with you in the event you have to suddenly evacuate your home.

During a Disaster: What to Do

If you do end up finding yourself in a disaster or emergency situation, you’ll be thankful you put in the work to form a plan. Unprecedented events often pile on extra stress, but if you’re financially prepared, you’ll have one less thing to worry about. That way, you can focus on keeping yourself and your loved ones safe.

Take Advantage of Mobile Banking

Depending on road conditions, your transportation situation and whether businesses are operating, you may not be able to physically travel to a bank. If you’ve set up direct deposit, you’ll have instant access to any income. If not, take advantage of mobile banking. Most large banks have apps that allow you to scan and deposit paper checks and transfer money between accounts. You’ll also be able to make timely credit card payments, which is crucial in making sure a disaster doesn’t cause your credit score to take a hit.

Contact Your Creditors

Another measure you can take to ensure your credit doesn’t take a hit if you’re finding it difficult to make monthly loan and credit card payments is to contact your creditors. Ask if there are any forgiveness policies given the extenuating circumstances. Many credit card issuers will offer emergency support, especially if the effects of the disaster are widespread. This may entail collection forbearance or increased credit limits.

Consider reaching out to any company to whom you make regular payments, including:

  • Auto loan companies
  • Credit card companies
  • Mortgage companies or landlords
  • Utility providers
  • Internet providers
  • Cellphone providers

Creditors to Contact in Crisis graph

During a disaster, you likely have a lot on your mind, and manually paying bills may easily slip through the cracks. If you sense a disaster situation is imminent, set up automatic payments so that you don’t have to worry about late or forgotten payments.

Revisit Your Budget

During times of hardship, it’s best to examine your budget and see what unnecessary expenses you can cut. This will ensure you have plenty of funds for necessary expenses and that you can cover any unexpected costs with the help of your emergency fund.

Budget categories that you may consider temporarily cutting or reducing during a disaster may include:

  • Restaurants, coffee shops, bars and cigarettes
  • Traveling, parking fees and gasoline
  • Clothing, haircuts and salon services
  • Entertainment such as concerts and movies
  • Cable TV or streaming subscription services
  • Gym memberships
  • Expensive cell phone data plans
  • Hobbies

Budget Categories to Revive in Disaster

Reallocate this money to focus on necessary expenses or sock it away if you anticipate hefty repairs or medical bills after the disaster is over. You may also opt to donate this money to disaster relief organizations.

Keep an Eye On Investments

In a crisis or disaster, oil prices and stocks will likely plunge. Businesses may struggle and the economy may take a turn for the worse. But good investors know not to panic at the first sign of a dip. According to the Center for Retirement Research at Boston College, active investors, or ones who shuffle around based on new information, tend to do worse than passive ones who remain hands-off with their investments. Remember that your investments are long-term and that they’ll likely bounce back. If you’re worried about your investments — retirement or otherwise — consult your financial advisor.

After a Disaster: How to Recover

Once the disaster has passed and you begin to resume normal life, there are some immediate action items you’ll want to take care of to best assist your recovery.

Be Wary of Scams

Scammers use disasters as a way to target people, particularly seniors, when they’re already under significant stress and financially vulnerable. According to the United States Senate Special Committee on Aging, seniors lose nearly $3 billion annually to fraud.

There are many different types of scams involving health products, charity imposters, stocks, taxes, jobs and more.

To spot a scam before it causes financial hardship, keep an eye out for any of the following:

  • Aggressive donation requests via cash through the mail or wire transfer, especially from unfamiliar organizations
  • Calls from organizations you’ve never heard of that say “thank you” for a pledge you didn’t make
  • Organizations that claim they are government-affiliated but have no credentials and no online reviews
  • Job postings from companies that are anonymous, require upfront payment or don’t have an online presence
  • Emails from websites with unfamiliar or unregistered domains, or ones with poor grammar or sentence structure
  • Claims that an expensive product can make you healthy or lose weight from companies that aren’t in the medical or pharmaceutical industry

Seniors lose to financial scams graphic

If you suspect you were the victim of a financial scam during a disaster, call the U.S. Department of Justice’s disaster fraud hotline at 866-720-5721 or submit a complaint online.

Contact Your Employer

After a major crisis, it’s common for employers to allow workers a bit of time to regroup and get their affairs in order. If the disaster has caused you to miss work, ask your boss how much sick leave or paid time off you have accrued. If a disaster has made it dangerous to return to work, or if working conditions are clearly unsafe, ask if you are able to work remotely. If not, you may be protected under the National Labor Relations Board and the Occupational Safety and Health Administration. Examine these laws to see if your situation protects you from employer retaliation.

File Necessary Insurance Claims

In the wake of a natural disaster, you should assess any damages. If a disaster event caused damage to your home, car or belongings, do not throw anything away. Take photos of the damage and keep them on file for the claim and inspection. If there are immediate repairs required for the safety and livability of your home, take care of those right away.

You then have a year following the disaster to file a claim, following these steps:
Call your insurer
Determine which damages are covered by your policy, how long you have to file the claim, how long it will take for processing and if you’ll need to get an estimate from a roofing company or appraiser.
Obtain a claim reference number from your insurer
This will be useful when filling out forms sent to you by your insurance company.
Schedule an insurance inspector visit
Compile a list of damages to give to the inspector so he or she can determine what will be covered. This is where having a home inventory comes in handy.
Receive your reimbursement
Insurance companies will either reimburse you for the original cost of your belongings or the depreciated cost.
Review your reimbursement
If you feel it is inaccurate or incomplete, you can schedule a second inspection. If you find any new damages, make sure to include these here.
losses to Natural Disasters

If your damages aren’t covered by insurance, you may be eligible for a disaster relief program.

Check Assistance Eligibility

Many homeowners are eligible for assistance from FEMA if they are “in a declared area whose essential property has been damaged or destroyed and whose losses are not covered by insurance.”

You may also qualify for local disaster assistance. Google your city + “disaster relief” to find local organizations that may be able to help.

Other disaster assistance programs for which you may be eligible include:
Energy
The Low Income Home Energy Assistance Program Disaster Relief helps low-income families pay for energy bills and minor energy-related repairs.
Shelter
The Transitional Shelter Assistance Program provides short-term housing as refugees transfer from emergency sheltering to something more permanent.
Taxes
The Disaster Assistance and Emergency Relief Program from the IRS helps taxpayers by granting them additional time to file their returns without a penalty.
Nutrition
The Disaster Supplemental Nutrition Assistance Program helps low-income households pay for food by providing an Electronic Benefits Transfer that is usable in most local grocery stores.

Prepare for Future Disasters

If you come to realize after a disaster passes that you had not set yourself up in the most optimal way, use the situation as a learning experience. Take note of things you could have done that would have made your recovery process smoother. While you would never hope to encounter another crisis, it may be easier the second time around with better preparation.

Here are some action items to consider:

  • Invest in home improvements to bolster safety.
  • Revisit your insurance coverage.
  • Ensure your financial documents are secure.
  • Up your emergency savings fund.

Disaster recovery takes time and patience, and everyone’s timeline looks different. Remember that you’re not alone and that there are resources available to aid those that need it the most.

Additional Resources

For additional information pertaining to financial emergency preparedness, explore the federal resources below:

No one expects a devastating event, and we can never be fully prepared for everything. But having a solid financial preparedness plan can pay off in huge ways if disaster ever does strike.

Building solid savings, creating a preparedness plan and reading up on available resources

can help protect your financial wellbeing. It will also give you the peace of mind of knowing you’ve done your part to prepare for whatever comes your way.

Please seek the advice of a qualified professional before making financial decisions.
Last Modified: October 7, 2020

11 Cited Research Articles

Annuity.org writers adhere to strict sourcing guidelines and use only credible sources of information, including authoritative financial publications, academic organizations, peer-reviewed journals, highly regarded nonprofit organizations, government reports, court records and interviews with qualified experts. You can read more about our commitment to accuracy, fairness and transparency in our editorial guidelines.

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  9. Center for Retirement Research at Boston College. (2017, January). Target date funds: What's under the hood? Retrieved from http://crr.bc.edu/wp-content/uploads/2017/01/IB_17-2.pdf
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