Being aware of how climate change can impact finances

Kristy Jiayi Xu got an unwelcome surprise this New Year’s Eve: The roof of her garage was leaking during a severe rainstorm in San Francisco. Delays in getting a contractor to fix the roof has brought unexpected costs to keep things dry, including a dehumidifier.

“My husband and I are both from the East Coast, so we always think the rain here lasts for a day,” says Xu, a certified financial planner and CEO of the firm Global Wealth Harbor.

In September 2022, she and her husband faced a heat wave — another weather incident they weren’t expecting.

“We have air conditioning, but the bill was so high,” she says.

For over a decade, scientific reports have shown how climate change will likely make extreme weather events more frequent. And this trend might affect your wallet.

Higher insurance deductibles and additional policies

More storms typically mean more risk of damage to your home or car.

Competition among insurers is shrinking in areas most vulnerable to climate change, which means higher prices for consumers, especially higher deductibles, says Amy Bach, executive director of United Policyholders, a nonprofit that advocates for insurance consumers. A deductible is the amount you pay before an insurer covers damages.

In hurricane-prone states, some insurers offer home insurance policies with separate hurricane deductibles. And insurers’ policy language keeps changing to limit what they pay for, Bach says.

Climate change contributes to rising insurance costs, but pricing risks is what insurers are equipped to do, Jeff Brewer, department vice president of public affairs for the American Property Casualty Insurance Association, said in an email.

If you live in an area prone to floods or earthquakes, you’d want extra insurance since most homeowners and renters insurance policies don’t cover damages caused by those disasters.

Higher food, energy costs

Extreme temperatures have become more frequent, which can affect crop production and household energy usage. In turn, your grocery and energy bills may increase.

Home heating prices this winter are expected to reach the highest level in 10 years, according to the National Energy Assistance Directors Association. And last summer, NEADA found that cooling costs also increased.

Indirect hits on investments

“Climate change is going to impact the long-term valuations of both stocks and bonds,” Zach Stein, co-founder of Carbon Collective, an investment advisory firm focused on creating portfolios that fight climate change, said in an email.

Some industries’ performance may hurt your investment portfolio returns. Stein predicts that we’ll see the most volatility in upcoming decades in agriculture, insurance and real estate.

What you can do now

■ Compare home insurance options. Get quotes from multiple insurers. In areas where insurance is hard to get, Bach recommends getting help from an independent agent or broker.

■ Expand your emergency fund. Experts generally recommend setting aside three to six months’ worth of living expenses in a savings account. Since disasters can have more unpredictable costs than job loss, CFP Xu recommends aiming closer to the six months figure.

■ Consider banking and investing that support environmental causes.

■ “Storm-proof ” your property. In case of flooding, have sandbags available and clear your gutters. In case of a wildfire, look into fire-resistant vents and roof materials.