How to financially prepare for and recover from a natural disaster

Climate change has made hurricanes, wildfires and other natural disasters more prevalent and devastating in recent decades, with a huge economic impact in the US. Average losses from insured catastrophes have risen 700% since the 1980s, according to the Insurance Information Institute. And the National Centers for Environmental Information predicts wildfires will cause roughly $5.6 billion in damages in 2023 alone, and flooding another $6.8 billion.

While natural disasters can look dramatically different depending on where you live, there are ways to steel yourself against the unexpected — as well as key steps to follow after disaster strikes.

Here are CNBC Select's tips to financially prepare for and recover from a natural disaster. 

• How to prepare for a natural disaster
• After a disaster, file the proper insurance claims 
• See if you're eligible for financial assistance 
• Use your emergency fund and decide if you need to tap other resources  

No one wants to think about a catastrophe, but being prepared can make all the difference when the worst happens. Here are three steps anyone can take before a natural disaster.

Make a home inventory 

Renters or homeowners insurance can fund repairs and replacements after a covered event. To make a claim, however, you'll need a list of damaged property. So before disaster strikes, make a list of your possessions, especially anything valuable. That might sound daunting, but it can be as simple as a video walkthrough of your home, noting when certain items were purchased and any other important details.

Not only can a home inventory help you file a claim, it should also give you a better idea of the amount of personal property coverage you need.  

Of course, it doesn't do any good if your inventory is destroyed in a flood or fire, so keep a copy of it— and other important documents, like your insurance policies — in a safe deposit box, fireproof lockbox or other secure location. You can also keep digital copies of your records on the cloud or a USB drive.

Have the right insurance  

You'll want a policy that includes coverage for your home, your belongings, your liability and any additional living expenses you incur if your home is unlivable. You'll also want to consider additional coverages for detached structures not covered under a standard homeowners policy, as well as scheduled coverage for valuables, like jewelry and fine art.

It's also important to understand what your policy doesn't cover: Flood damage, for example, is excluded under many policies. It can be purchased either from the National Flood Insurance Program or from a private insurer.

We recommend Neptune Flood Insurance, which is available nearly nationwide and offers optional coverage for basements and swimming pools.

We also chose Beyond Floods Flood Insurance for its relatively high coverage limits for dwelling and contents coverage.  

Build an emergency fund

"Everyone should have an emergency reserve," says Jaime Eckels, a certified financial planner at Plante Moran Financial Advisors.

The rule of thumb for an emergency fund is to save between three and six months' worth of expenses in a separate savings account, But Eckels suggests a larger cash reserve for some people. "If you live in a disaster zone, where you're more likely to have hurricanes, tornadoes or expected events, you should have larger cash reserves," she says.

A high-yield savings account can help an emergency fund grow faster while still being readily available. We've picked LendingClub's High-Yield Savings and UFB High Yield Savings as our favorites — both have competitive APYs and no minimum balance requirements.  

After a disaster, you'll likely need to make repairs to your property and replace some belongings. "Figure out exactly what's covered and what you're going to be required to pay out of pocket," says Eckels.

Contact your insurance company as soon as possible to file a homeowners insurance claim or a renters insurance claim. You'll need documentation of the situation, so take photos and videos.

If you're making a claim, look at your policy's declarations page to find out what your deductible is. That's the amount you're responsible for before coverage kicks in. In some states, hurricane and windstorm damage is subject to a different deductible — often a percentage of the home's insured value, ranging from 1% to 10%.

There are numerous resources available for victims of a natural disaster, from federal programs to community groups. Here are a few to start you off:  

• Federal Emergency Management Service (FEMA): FEMA provides money and services to qualified individuals and families who have suffered damage to their home, car or other property as the result of a presidentially declared disaster. The agency can also help with childcare, medical expenses and clean-up items. You can find a current map of areas declared disaster zones and an online application for aid at Disasterassistance.gov.

• Small Business Association: Even if you don't own a business, the SBA offers home and personal property loans to repair or replace primary residences and belongings. Homeowners, renters and business owners affected by a disaster can apply at the Small Business Association's website.
  
• Your state's emergency management agency can direct you to local resources and funding. Find your office on USA.gov's national directory.
  
• The Red Cross: The Red Cross offers housing, clothing, food and other support to those affected by disasters. Its website also has a resource directory of other local groups.

Additionally, think about how you'll cover your expenses. Federal student loan borrowers can apply for a natural disaster forbearance, which can pause or reduce loan payments for up to 90 days, though interest still accrues. For other debts, contact your lenders to see what options are available.

If you're faced with a natural disaster, your emergency fund can cover insurance deductibles and other costs. Using that fund first protects your other investments.  

If you have to tap other resources, Eckels says, it's best to look at accounts that won't incur penalties.

"The next step after an emergency reserve, ideally, would be an after-tax brokerage account," she says. "You're not paying any type of penalty to take money out of there to help pay for those expenses. And you can rebuild it once you get everything settled." 

If that's not an option, a Roth IRA could be the next option in an emergency. "Any time you take out the contributions into the Roth IRA, it comes out tax and penalty-free," Eckels says. This should be seen as a last resort, however, as there are annual limits on how much can be put back into the Roth IRA.  

Understanding your coverage and setting aside an emergency fund before a disaster happens can make the recovery process a lot easier. If you are faced with a fire, flood or other catastrophe, contact your insurer and look for federal and local assistance to get back on track.  

At CNBC Select, we work with experts who have specialized knowledge and authority based on relevant training and/or experience. For this story, we interviewed Jaime Eckels, a certified financial planner at Plante Moran Financial Advisors in Auburn Hills, Michigan. She has been in the financial planning industry for 25 years.  

At CNBC Select, our mission is to provide our readers with high-quality service journalism and comprehensive consumer advice so they can make informed decisions with their money. Every insurance review is based on rigorous reporting by our team of expert writers and editors with extensive knowledge of insurance products. While CNBC Select earns a commission from affiliate partners on many offers and links, we create all our content without input from our commercial team or any outside third parties, and we pride ourselves on our journalistic standards and ethics. See our methodology for more information on how we choose the best insurance.

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Correction: This story has been corrected to reflect that Jaime Eckels is a certified financial planner at Plante Moran Financial Advisors.