While the facts show that everyone is at risk of experiencing the devastation that disasters bring, few truly understand what happens after disasters strike. While federal disaster assistance is somewhat complex—after all, it involves the federal government—here are some points to keep in mind after a natural disaster occurs.

First, in order for federal disaster assistance to be granted to impacted areas, a presidential declaration is generally required. Without it, no federal assistance is provided.

Second, the most common form of federal disaster assistance is a loan, which must be paid back with interest. Loans are provided through the Small Business Administration (SBA) for both homeowners and businesses, and the interest rate is determined by law (https://www.fema.gov/disaster-declaration-process). Loan interest rates are based upon resources available to applicants. Currently the rates will not exceed 4 percent at the lowest for those most in need, while others are charged the current market rate, not to exceed 8 percent.

Third, it is important to know that both loan amounts and the length of the loans are limited. Generally, a dollar limit of $200,000 is available to repair or replace a primary home, while the length of federal disaster loans can be extended up to 30 years.

Do the math. $200,000 at 8 percent interest with a 30-year timeframe amounts to a repayment of $1,468 per month, with $528,310 paid over the life of the loan. This is a far cry from the “free money” that some people have in mind when they hear that residents of a disaster stricken area have been awarded federal disaster assistance.  

But doesn’t insurance step in to pay for some of the losses that occur during natural disasters? Perhaps. A great number of people do carry property insurance, and it pays for fire, wind and hail damage. But few people carry flood insurance. And some people decide not to carry insurance on certain properties, such as secondary residences.   

So, yes, property insurance may provide monetary assistance after a disaster. But what about the loss of life? While some of the nearly 10,000 people who died during the 2017 disasters had life insurance, that is of little consolation to their surviving family members.

Thus far, it has been established that:

• Large scale natural disasters can occur with great frequency

• Such disasters can be severe, resulting in large property losses, as well as loss of life

• Disasters can happen anywhere so everyone is at risk

• Individuals can experience financial hardships for many years after a natural disaster strikes  

Once again, back to my original question: are you a risk manager? Do you feel that you should help your clients protect themselves against potentially catastrophic losses? If so, have you ever discussed disaster planning with your clients?