With Greg McBride, Senior Vice President and Chief Financial Analyst at Bankrate.com
Shortly after Hurricane Harvey ravaged South Texas, only a few days before Hurricane Irma pounded Florida, and with potential Hurricane Maria still unknown, Steve spoke with Greg McBride for disaster survival tips and dos and don’ts after natural disasters. Greg is a Certified Financial Analyst (CFA) and Senior Vice President and Chief Financial Analyst for Bankrate.com.
Secure Your Property
Steve kicks off the conversation by asking Greg what one should do right after a storm. Greg’s advice is to first protect and secure property and then look for and document property damage for insurance claims. He recommends having hard copies of key insurance documents or policy numbers at the very least, so insurance adjusters can expedite your claims.
Carry Cash For Temporary Cash Economy
Greg warns of widespread power and telecom outages and a temporary return to an all-cash economy without ATMs and credit card terminals while links are being repaired and restored. He recommends carrying enough cash to meet your needs for at least a few weeks.
Steve adds that one must prepare ahead and take pictures of precious items that would be covered by insurance. He cites his own example and says he has pictures of musical instruments and some art that’s important to him. Steve also recommends keeping receipts of disaster-related purchases made before, during, and after the storm so you can claim insurance reimbursement. Greg agrees but adds that stores without power or telephone connections may not be able to give you receipts, so make a log of your expenses.
Know What Your Insurance Covers
It’s also vitally important to know what your insurance covers, says Greg. For instance, after Hurricane Harvey hit South Texas, a lot of people found out, all too late and much to their dismay, that most homeowners’ insurance policies do not protect against flooding from water that’s rising up and into your home. While homeowner’s insurance covers water from damaged roofs, flood insurance typically requires a separate policy.
Don’t Stop Your Mortgage Payments
In the worst case of your house being totally damaged beyond repair, Greg’s disaster survival tips include continuing to pay off your mortgage even though you don’t really have that house anymore because defaulting on those payments will damage your credit history. Furthermore, your mortgage company is listed as a loss payee on the insurance claim, so your mortgage will get paid in full through the insurance settlement, allowing you to move on with either rebuilding or buying another home.
Steve adds that a loss of vital services, such as postal deliveries or internet access, should not lull you into defaulting on your payments. Check with your mortgage company if it will accommodate payment delays for valid storm-related reasons, and do all you can to not default on payments. As he puts it, think long-term when it comes to disaster survival and keep making your payments till everything has been settled.
Get Financial Aid From FEMA
Additionally, Steve recommends checking with the Federal Emergency Management Agency (FEMA) for interim funding. FEMA currently offers grants of up to $33,300 per household for disasters that happen within the twelve months ending September 30, 2017. Greg suggests downloading FEMA’s mobile app for alerts, safety reminders, shelter locations, and other disaster survival tips.
Beware Of Post-Storm Mold
Switching gears, Steve suggests watching out for mold in your home because it is extremely dangerous to human health. Learn how to spot mold and how to remove it. Greg chimes in that the sooner you address mold issues the better, so immediately ripping out water damaged dry walls and flooring is a good way to prevent the accumulation of mold.
Wrapping up the list of disaster survival tips, Steve wants Greg’s thoughts on whether one should tap into a 401(k) for emergency funds after disaster strikes. Greg believes prematurely tapping into retirement funds is generally a bad idea. Of the two allowed options—borrowing or making a hardship withdrawal—he sees borrowing as the lesser of two evils because you’re borrowing from yourself and paying the principal and interest back to yourself. However, the time you spend putting money back into the account is time you’re not putting new dollars in, and that’s a permanent setback to your retirement planning even if you’re just borrowing rather than taking an all-out withdrawal.
Disasters strike with and without warning, so prepare for them beforehand, stay safe through them, and know how to bounce back quickly after the storm passes.
Disclosure: The opinions expressed are those of the interviewee and not necessarily United Capital. Interviewee is not a representative of United Capital. Investing involves risk and investors should carefully consider their own investment objectives and never rely on any single chart, graph or marketing piece to make decisions. Content provided is intended for informational purposes only, is not a recommendation to buy or sell any securities, and should not be considered tax, legal, investment advice. Please contact your tax, legal, financial professional with questions about your specific needs and circumstances. The information contained herein was obtained from sources believed to be reliable, however their accuracy and completeness cannot be guaranteed. All data are driven from publicly available information and has not been independently verified by United Capital.
Steve Pomeranz: As part of the human distress that has unfolded in South Texas, and as we here in South Florida are looking at possible repercussion from Irma, we’ve decided to do a segment on what do to after a hurricane hits. I’ve invited Greg McBride. Greg has been on the show many times. He’s a certified financial analyst. He’s the Senior Vice President, Chief Financial Analyst for Bankrate.com, and he’s with me here to discuss what do to. Hey, Greg. Welcome back.
Greg McBride: Great to be with you, Steve. Thanks for having me.
Steve Pomeranz: Yeah. There’s a list of things. A lot of them are common sense, but some of them are not. Let’s start with what you should do, this is after the storm. What’s one of the first things that you should do?
Greg McBride: Well, certainly be on the lookout for any type of damage that needs to be documented. Protect your property, secure it. And realize that there’s going to be power outages that are widespread, so having access to hard copies of your documents is going to be helpful in dealing with insurance adjusters that may be on site, or just having access to cash so that you can buy things. A lot of times after a storm, you’re back to a cash-only economy for a while until power is restored on a regular basis.
Steve Pomeranz: Hopefully, you have pictures of your precious stuff. I have a lot of musical instruments in my home, and I’ve got pictures of them. I’ve got some art that’s important to me. I make sure to have pictures of that. Insurance companies really love that stuff. Also, make sure that you keep all your receipts for purchases made after the storm because you’re going to want to go for reimbursement on those, right?
Greg McBride: Yeah. Absolutely. That gets a little bit tougher if you’re dealing with say, a store that doesn’t have power or they’re running on backup generators or something. They may not be running everything through the regular cash register and printing out receipts, particularly if they’re only accepting cash. But whenever possible, absolutely secure those.
Steve Pomeranz: All right. What about your insurance company? There are different insurance companies. There’s your home insurance, your car insurance, and then the flood insurance. You should really have those telephone numbers handy, and you should know what your coverage is, right?
Greg McBride: Yeah. Know what your coverage is, know the policy numbers too. How many times where you call and the first question asked is, either an automated system or a live human, the first question they ask is, “What’s your policy number?”
Steve Pomeranz: Yeah. Good point.
Greg McBride: Having that file that contains those hard copies or at least copies of that important information, I think is really vital at a time like this. Steve, you mentioned flood insurance. That is the one that particularly with Harvey, so many people that don’t have flood insurance are really in a difficult spot because what a lot of people don’t understand is—or find out too late—is that your homeowner’s insurance policy doesn’t protect against flooding. It may protect on water that’s coming down through the roof, but not water that’s rising up. That’s a separate policy.
Steve Pomeranz: Yeah.
Greg McBride: It’s not escrowed through your mortgage payment like your traditional homeowner’s insurance policy. It’s a separate premium that you have to pay. I think a lot of people should really take another look at the flood insurance. Yes, the premium is not something to sneeze at, but an ounce of prevention is worth a pound of cure. A lot of our friends in South Texas, they’re wishing now that they had made a different decision regarding flood insurance earlier.
Steve Pomeranz: Talking about South Texas and the terrible flooding they had there, what happens if your house gets blown down or your house gets totally damaged beyond repair? Here was a question that when I was researching this that came up: Should you continue to pay your mortgage even though you don’t have a house anymore for the mortgage? I think the answer is yes. You must continue to pay your mortgage.
Greg McBride: Yeah, absolutely. Exactly. I couldn’t jump in fast enough on that one. Yes, because the mortgage company is listed as a loss payee on the insurance claim. Eventually, that mortgage will get paid off via the insurance settlement, and then you can move on with the process of either rebuilding or securing another residence. In the meantime, absolutely because your credit history goes on. That mortgage, until the loss payee payment is received from the insurance company, unfortunately, those monthly payments are due. Same goes for the car as well.
Steve Pomeranz: Yeah. Well, the idea though is that most mortgage companies, the big banks and others, they’ll alleviate the pain a little bit when it comes to maybe payment if there’s no electricity for weeks on end or something of that nature. A delay of payment can still hurt you, but make sure that your bank is going to accommodate you for that. Think long term when it comes to these things.
Greg McBride: Yeah. They’ll give you often a temporary reprieve on late charges, particularly if mail doesn’t operate for a while after a disaster. Like you said, power is out for an extended period of time. You can’t make those online payments. Late charges are typically waived. In extreme cases, they may even defer for a while. But in your terms, thinking long term, the payment is still going to have to be made at some point to bridge the gap until the insurance pays it off.
Steve Pomeranz: Yeah. FEMA comes into the mix here a little bit because FEMA does offer grants to fill in the gaps between insurance payouts and an SBA loan. The maximum grant is $33,300 dollars per household. That’s for disasters that happened in the fiscal year that ends September 30th, 2017. Just by the skin of our teeth because the news reports now is that FEMA is running out of money. I don’t think that that’s something that’s actually going to happen because it’s backed by the Federal Government. But nevertheless, you can get some temporary funds through FEMA, and I think that’s important to know.
Greg McBride: Yeah. They actually have an app you can download to your phone. Probably good to have that.
Steve Pomeranz: That’s great news.
Greg McBride: Or your iPhone may be your only connection to the outside world if power’s going to be down following a storm.
Steve Pomeranz: Here’s another thing. This, again, is your home is damaged, you’ve got flooding, whatever it is. Be on the lookout for mold because mold is extremely dangerous to you and your family’s health. You want to learn how to spot mold beginning in your house and learn what to do to remediate it. Any points on that?
Greg McBride: That’s one where you want to catch it sooner rather than later, too. The earlier you can catch that, the better off you’re going to be. A lot of us have seen the TV footage in Southeast Texas of people that are ripping out flooring and drywall and things that are just piled up by the curb. A lot of that is to get that stuff out of the house so that you don’t have the accumulation of mold.
Steve Pomeranz: All right. Finally, what about raiding your 401 (k) if you need cash? Is that a good idea?
Greg McBride: No, it’s not a good idea. That probably doesn’t surprise you that I say that. However, the economic reality for a lot of people, particularly those in Texas that didn’t have flood insurance or others that weren’t adequately covered is that may be their only option. But just understand the consequences of this. You are dealing a permanent setback to your retirement planning. There’s a couple ways to go, that you can either borrow from it or you can take a hardship withdrawal. Borrowing is the lesser of two evils because at least there you’re paying the money back to yourself, the interest back to yourself, to your own account, but you’re going to miss out on the growth of that money over time. Then you also lose tax efficiency. The time you spend putting money back into the account is time you’re not putting new dollars into the account, so it’s a permanent setback to your retirement planning, even if you’re just borrowing rather than taking an all-out withdrawal.
Steve Pomeranz: Well, we do a lot of preparation as well as we can to get ready for hurricanes. There’s the before; there’s the during, the hunkering down, and the worrying and trying to make sure everybody is safe; then there’s the after. What we’ve been talking today with Greg McBride about is the after. What to do after a hurricane. Greg, thank you so much for joining us. Greg is the Chief Financial Analyst for Bankrate.com. Thank you so much.
Greg McBride: It was a pleasure, Steve, thank you.
Steve Pomeranz: To hear this conversation again, and to join our conversation at our website, don’t forget to go to StevePomeranz.com.