Advisors say clients may not realize the actual costs to rebuild their homes in wake of a disaster.Frank Gunn/The Canadian Press
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In the wake of hurricanes, tornados, and other natural disasters such as forest fires and floods, advisors increasingly need to explore disaster recovery strategies with their clients, starting with their homes.
While advisors cannot assess home insurance policies – strictly the domain of property and casualty insurance brokers – they can still ask their clients one basic question: have you reviewed your policy?
As senior property and casualty broker Paul Martin, who is president and chief operating officer at KRGinsure, pointed out to delegates at the Institute of Advanced Financial Planners Symposium in September, “My home is part of my financial plan. I would expect my financial planner to ask my plan for [that asset].”
Advisors can also follow up with clients and make sure a discussion took place with their P&C brokers, says Catherine Hurlburt, senior financial planner at Assante Financial Management Ltd., in Vancouver.
“It’s part of our job to identify risk and problems,” she says. “Anything that threatens their financial security is something that may require more investigation. Some of the things we can’t do because we’re not licensed in that area, but we can still say ‘look, there’s a cliff over there, don’t fall over it.’”
An under-insured property affected by a disaster could wreak havoc on a client’s savings and plans for retirement.
“A lot of clients just get the renewal in the mail and pay the bill without reviewing the policy each year,” Ms. Hurlburt says. “They don’t check to see if their jewelry is worth more now. They don’t take a critical look at the value of the contents in their house.”
Ms. Hurlburt lived through what she speaks. Last year, a fire in a neighbour’s townhouse spread to her family’s townhouse, causing the unit to have to be rebuilt from the studs. It had significant water and smoke damage, and most of the contents were destroyed. Ms. Hurlburt says the interplay between her personal insurance coverage for the unit and the strata’s (development’s) insurance resulted in some unexpected surprises.
While the strata’s insurance covered the structural damage, Ms. Hurlburt and her spouse were on the hook for replacing some of the improvements and under-insured contents in her home.
“You would be amazed at the value of the stuff in your house,” she says.
She used the example of one kitchen drawer, which might contain knives, a potato peeler, wooden spoons and other small tools. “Every one of those items cost $8 to $10 a piece, so the drawer contents would easily be worth a few hundred dollars. And yet we look at it and think it’s just old junk.”
Ms. Hurlburt notes that clients may bring up home insurance to advisors when they are concerned about a hefty increase in premiums. They want to know whether the amount is a reasonable figure to pay, but the clients may not also realize the actual costs to rebuild their house in wake of a disaster.
“Building costs have gone up tremendously,” she says. “In B.C., for example, it’s probably around double the cost of what it was eight years ago.”
How to fund rebuilding costs
Unfortunately, some clients don’t find out about the true building costs until they make a claim and their payout is much lower than expected, says Shannon Tatlock, associate advisor with Kevin R. Williams Financial Services Inc., at Sun Life Financial Investment Services (Canada) Inc., in Moncton.
The client may come to her for advice on the financial options for replacing a damaged roof, deck, or other area of their home.
“We typically try to have our clients set aside emergency savings, but the amounts saved may not be enough,” she says. “We look at lines of credit, the consequences of taking money out of their retirement savings, or using some of the cash value in their life insurance if they have it.”
In the wake of any disaster, most recently post-tropical storm Fiona, Ms. Tatlock’s firm makes it a point to stay on top of any federally and provincially government-funded programs where clients can apply for relief.
“This could be a large monetary issue for clients,” she says. “We want to be the person they can come to and get advice. We don’t want to be another stressor, so we try to walk them through all the options and if it means taking money out of their retirement, there’s no guilt or shame in that.”
That’s the point of being a holistic advisor and taking care of the whole person, Ms. Tatlock adds.
Other factors to consider
Storing important papers securely are also discussed with clients, namely in a fire and/or waterproof location.
Russel Jarvis, certified financial planner (CFP) at Assante Financial Management Ltd. in Vancouver, who works with Ms. Hurlburt, says older clients may have fireproof safes at home or one at a financial institution. Some clients have taken things a step further by also storing a copy of their wills, powers of attorney, tax returns, and other key documents in the cloud.
“We can store them for the clients within our Assante network and they can be stored in a way that clients can access them as well,” Mr. Jarvis says.
Finally, clients – and advisors – may consider a communication strategy with family, friends, and their work in anticipation of prolonged power outages during a disaster.
Roger Sinclair, managing partner and CFP at SBW Wealth Management in Dartmouth, N.S., says he wishes he had sent out a memorandum to clients and his team the day before Fiona hit. He would have notified them of a possible extended closure.
The neighbourhood where Mr. Sinclair’s firm is located lost power for more than five days. But he figures clients more than got the message, as many parts of the province are still without power nearly two weeks after the hurricane.
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