Canadians saw extreme weather coast to coast in 2013 – and insurance companies saw a spike in their payouts at a record-breaking $3.2 billion to policyholders, according to the Insurance Bureau of Canada. This is more than triple the normal payout rate, which has averaged $1 billion since 2010.
The Floods: A Financial Disaster
The record payouts aren’t surprising considering we had three major weather disasters last year – the Alberta floods, the costliest natural disaster in Canada’s history, resulted in a payout of $1.74 billion, while the Toronto floods saw $940 million in payouts. Two hundred million was most recently paid out for the ice storm in Ontario and eastern Canada.
If these figures scare you, they should – and those are only for the losses that were insured! As I discussed in Insurance Lessons From The Calgary Floods, a lot of Albertans were shocked and outraged to find out their insurance policy didn’t cover a lot of the damage, leaving many of them to foot costly bills. And it’s not over – this is officially the winter of the Polar Vortex, meaning extreme cold remains a factor.
If you’re a homeowner you probably already have home insurance – but while that’s an essential first step for disaster-proofing your life, it won’t cover everything. There are other important ways you can prepare your finances for the next disaster.
Preparing for the Next Disaster
It’s important to be proactive and start planning today for the next weather related disaster – you never know when they’ll strike. Most homeowners already have the essentials ready – non-perishable food, such as peanut butter and tuna, flashlights, generators, etc. – but when it comes to their finances they may be leaving themselves vulnerable.
How To Protect Your Cash In A Natural Disaster
Being without power for days means you may have to pay for accommodations at a hotel and when you return home your fridge will be full of spoiled groceries you’ll need to restock. Even worse a tree limb could fall on your roof, leaving thousands of dollars in damage. This can be tough on your finances, especially when your place of work may be closed, leaving you with a cash crunch.
“Canadians should think of keeping their emergency fund stocked with enough money to cover three months’ worth of living expenses,” says Mark Rosen, trustee in bankruptcy and senior vice president of BDO Canada Limited. “Your emergency fund does not have a ‘best before’ date and will not expire even if it is never used.”
How To Save For 3 Months’ Worth Of Living Expenses
We know the holidays just finished and money is tight. You’re probably finally getting your holiday spending credit card statement in the mail. Although the next major storm may be on the way later this week, it’s never too late to stock your emergency fund. BDO Canada Limited offers these tips for saving towards your emergency fund:
- Review your household budget to identify expenses that can either eliminated or reduced and deposit the money into a separate account
- Make saving painless by creating an automatic withdrawal from you payroll account
- Add any ‘found money’, such as your tax refund, dividend cheques or purchase rebates, to the account
- Take advantage of your employer’s payroll savings or RRSP matching plans
- Round up your cheques or on-line payments to the nearest dollar and deposit the change into the fund
Should You Ever Dip Into Your TFSA or RRSP?
When you have thousands of dollars in damage from a flooded basement it can be tempting to use your TFSA or RRSP, especially when the alternative is racking up credit card debt at 20 per cent or higher. BDO Canada Limited offers these tips:
- If you must dip into savings, your TFSA is the more flexible choice over an RRSP.
- A TFSA gives you the ability to withdraw money, in this case for an emergency, and then in the next year contribute to the maximum plus deposit the amount you took from the year before.
- Withdrawals from a TFSA are not counted as income; whereas if you take money from your RRSP it is considered taxable income.