8 Ways to Regain Your Financial Footing After a Natural Disaster

“That's an immediate need that a lot of people have, so if they are going to file a claim, that would be an advantage — they'd have coverage right from the start,” says Nancy Albanese, vice president and private client advisor at the Safegard Group, an insurance brokerage in Media, Pennsylvania.

3. Hit pause on your bills

Natural disasters don’t absolve you of responsibility to pay your mortgage, car loan, credit card bills and other debts. But if you ask your lenders, you may be able to get short-term relief such as forbearance or a repayment plan, the federal Consumer Financial Protection Bureau (CFPB) says. That can free up funds to help you get through a loss of income, property or both.

Contacting lenders proactively can also save you from late fees if you forget to make a payment in the chaos following a disaster. If you’ve been displaced, the CFPB also recommends asking your utility company to suspend your service as another way to conserve your available funds.

4. Apply for a federal small business disaster loan

You don’t need to be a business owner to qualify for a U.S. Small Business Administration (SBA) disaster loan. Individuals can apply for these low-interest loans if they suffer home or personal property loss in a federally declared zone that is not covered by insurance.

Homeowners may borrow up to $500,000 for damage to their primary residence, and both owners and renters can apply for loans up to $100,000 to replace or repair personal property such as cars, furniture or appliances.

Second homes and vacation properties are not eligible for an SBA home or presonal property loan, but if you earn rental income from such a property, you might qualify for a disaster loan for business owners.

5. Tap your retirement savings

Generally, people younger than 59½ who take money out of a retirement account such as an IRA or 401(k) must pay a 10 percent early-withdrawal penalty. However, there is an exception if you need the money for disaster recovery.

SECURE 2.0, a federal retirement-savings law enacted in 2022, permits penalty-free early withdrawals of up to $22,000 if you are in a presidentially declared disaster area. You will still owe regular income taxes on the money, but you can spread them out over three years — or avoid them if you repay the account within that time.

Remember, though, that even if you pay the money back, you’re still losing out on the compound returns that money would have earned had you left it alone. This is an option for when other options fall through or prove insufficient.

6. Look for tax breaks

The IRS offers several tax breaks for disaster victims. If your home or business is in a declared-disaster zip code, you can get extra time to file and pay your taxes without incurring late penalties or interest. (Typical extensions buy you extra time to file, but not to pay your taxes.) You can find details about deadline extensions on the IRS website or by calling the agency's disaster hotline at 866-562-5227.If you itemize, you can claim deductions for disaster-related losses not covered by a home or car insurance claim, including any deductibles you paid. Deductions are limited to an item’s cost or its fair market value, whichever is lower. The total amount you may claim is determined by your unreimbursed losses and your income for the year. You also have the option of amending the previous year's tax return to claim your disaster loss for that year.

Property taxes are another potential source of financial relief, one people often overlook, Freedman says.

“After a disaster, your real estate is worth a heck of a lot less money,” he says. “We advise clients to contact the county assessor and have them immediately start working on an assessment of the property, because it can take years for the house to be rebuilt in some cases and one can pay a lot less in real estate taxes over the course of that time.”

7. Maximize your insurance payout

If your home is a total loss, your insurer most likely will pay out your policy maximum. But if the damage is partial, “that’s where it gets super-complicated,” with insurance adjusters making judgment calls about things like the cost to rectify smoke damage or the depreciated value of personal items, says Pam Krueger, founder and CEO of Wealthramp, an online network that matches consumers with fee-only financial advisers.

If you find yourself at odds with your insurance company’s adjuster, Krueger says, you might benefit from hiring a public insurance adjuster who can negotiate on your behalf to get the highest legally possible amount on your claim in exchange for a percentage of the payout (generally around 5 percent to 20 percent, but rates can vary widely).

When Freedman’s California home was damaged by wildfire in 2010, he hired a public adjuster, who consulted professional appraisers and detailed databases to calculate the value of clothing, handbags and other damaged items.

“We were able to recover a lot more than I would have been able to prove,” he says.

The National Association of Public Insurance Adjusters has an online directory you can use to find adjusters in your state. Ask about their experience and get references, Krueger advises. Some states cap the amount public adjusters can charge at 10 percent or 15 percent of your payout but be aware that many states have no caps.

8. Review your asset allocation

In the aftermath of a disaster, reviewing your portfolio isn’t going to be a high priority. But once you’ve repaired your home and replaced what you’ve lost, your thoughts may turn to the damage to your nest egg. If you’ve had to sell stocks or tap retirement savings to cover your losses, a financial planner can help you strategize for long-term financial recovery.

You may feel an urge to play catch-up, quickly, by moving into investments that promise to juice returns but carry higher risk. Resist it, says Alonso Rodríguez Segarra, founder of Advise Financial in Boca Raton, Florida.

“When your personal risks are higher, your portfolio risks should be lower,” Rodríguez Segarra says. He recommends reducing the concentration of individual stocks in your portfolio in favor of diversified, low-commission index funds and selling off volatile assets like cryptocurrency.

Having to dip into a brokerage account for disaster funds can yield silver linings at tax time, he adds, if you are strategic about what you sell. For example, look to sell assets you’ve held for more than a year — long-term capital gains are taxed at a lower rate than short-term gains — and take the opportunity to get rid of underperforming stocks at a tax-deductible loss.

If you get an extension to pay your taxes, don’t just let the money sit in a checking account while you wait to pay Uncle Sam — put it to work for you. “Today, you can put money in a bank money market account and earn between 4.25 and 4.75 percent,” Freedman says.