Few people go through life without encountering some kind of a disaster. It might be job or personal loss, or tied to a weather event for which no amount of preparation will provide enough protection. The common denominator for getting through and past a destructive event regardless of its cause is to be financially ready.
Identifying the situations that would have the most financially devastating impact on your life is the first step in the planning process. They might include:
- Job loss.
- Major illness.
- Catastrophic events affecting your home or vehicle.
- Loss of a loved one.
How to Plan for Disasters Financially
Assess Your Vulnerability
After identifying the situations that would create a hardship for you, take a look at the safety nets you have in place and those that you need to get through the challenge. The first place to start is by trimming your discretionary spending.
You can keep it in an account that’s easy to access for emergencies or increasing insurance coverage. You can also use the savings to invest in financial protections that will cover some of the costs associated with a financial emergency or disaster.
Protecting the Investments in Your Home or Rental Property
It might be a good time to review your insurance policies for their benefits, including their caps and terms. If you’ve had them for a while, you may need to increase your coverage. If the insurance policy that covers your home has a fixed caps, take an inventory of the contents and its present value and adjust the policy accordingly. It may be worth it to get an appraisal if it’s not clear how yours compares to others in the area.
Knowing the current value will also give you an idea of the home’s value to you should you need a HELOC (home equity line of credit) to defray costs associated with an unforeseeable financial crisis. The HELOC’s interest rate will undoubtedly be lower than using credit cards.
Some industries are more sensitive to layoffs than others, and if yours is, learn what your state requires to apply for unemployment benefits and how much you’ll receive. The HR department can also tell you about any disability policies they have to cover you in the event of illness or accident beyond what workman’s comp covers. If such insurance is optional, it may be worth signing up for, especially if you are the sole provider.
Payment protection policies may be available for your credit cards and possibly your mortgage should you lose your job for any reason. Before accepting the policy, carefully review what the policy covers and for how long. Be sure that the policy will cover you if you’re self-employed. Some won’t.
If you have student loans, learn what their policies are regarding job loss or layoffs. Some have hardship programs that suspend or lower the payments. Other creditors may allow you to defer your payments from 30 to 90 days without reporting the missed payments as late.
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Work with the health providers on payment plans if your insurance won’t cover them. More than likely, you’ll be able to make repayment arrangements or negotiate the amount based on a fast settlement.
Trimming your spending and using the savings to increase savings and insurance coverage puts you in a more secure position. The financial ability to handle the challenges ahead will speed the recovery process.
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