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Get your finances in order before disaster strikes
The four powerful hurricanes that socked Florida last year should serve as a wake-up call for everyone -- particularly for people who live in areas prone to natural disasters. The damage caused by the Florida hurricanes was slightly more than $20 billion in insured losses, according to the Government Accountability Office. But you don't have to let your finances take a direct hit. Here are six ways to prepare for a disaster: 1. Carry insurance It may seem obvious, but many people are either underinsured or not insured at all, particularly for special coverage such as floods, earthquakes and hurricanes. According to the Federal Emergency Management Agency, only 25 percent of the 10 million American homes that lie within high flood-risk zones carry flood insurance. This, despite the fact that homes are four times more likely to be damaged by flood than by fire. 2. Be sure you have the right kind of coverage "The first line of defense is insurance. Make sure you have adequately assessed your insurance coverage before disaster strikes," says Stewart H. Welch III, a certified financial planner and founder of The Welch Group, a wealth management firm in Birmingham, Ala. "Sit down with someone such as the agent who writes your casualty policy and review all your insurance options." "Make sure you understand what coverage you really have," says Alan Goldfarb, a certified financial planner in Dallas. "For instance, there's a difference between replacement and reimbursement cost. Let's say your 3-year-old television was destroyed. Does your coverage give you the current value of your TV or what it would cost to replace it with a new one?" Cover the contents of your home, as well as the structure. If you're a renter, buy renter's insurance. The landlord's insurance won't cover damage to your possessions. 3. Start an emergency fund Once you've done everything you can on the insurance side and you feel like there still are deficiencies, you need to self-insure. Do that with an emergency reserve account. "The reality is that everyone needs to have an emergency fund, but not enough of us have them," says Wayne von Borstel, a certified financial planner and founder of a wealth management firm in The Dalles, Ore. The experts suggest using a payroll deduction plan or setting up an automatic deduction from your checking account to build your account. Start small if necessary, but contribute. "Financial planning is like eating an elephant," he says. "It sometimes seems hard, but if you start small and keep going, you can get it all done." Having enough cash to live on for at least three months can be a godsend during a disaster. 4. Take a home inventory Make a visual record of your possessions with a still or video camera. Go room-by-room and take an inventory of all the items inside. Describe the item, its cost and when you bought it. Note any serial numbers or model numbers. Photograph the exterior of your house, including landscaping, patio, fencing and sprinkler system. Include automobiles, boats and RVs in your inventory and photographs. Review your inventory every two to three years to keep it up-to-date. Augment the video or photographs with a written record. List each item and its value as well as any identifying numbers where appropriate. Put your inventory records in a safe place such as a safe deposit box. 5. Get a professional appraisal Jewelry, art, coins, stamp collections and other valuables may need a professional appraisal to support any insurance or tax deduction claims. Be sure your current insurance policy provides adequate coverage limits for these items, or have riders for them. 6. Keep copies of all financial records in a safe place Goldfarb suggests using a service that scans all of your important financial documents and keeps them in a secure vault on a Web site encoded with special passwords. "A secure Web site is impervious to weather conditions, a local disaster or even the failure of your hard drive. You can scan anything -- passports, birth certificates, life and homeowners insurance policies, marriage licenses or wills. Almost anything that's written can be stored and easily available to you from a computer." If you don't want to pay a monthly fee for a service, Goldfarb suggested scanning the documents yourself and burning your own CD with copies of all important financial documents. Be sure to keep the CD in a safe deposit box or other secured location not in your home. You can also get a booklet from your insurance company where you can record all account numbers and policy numbers and household inventory and other relevant financial information. Give it to someone you trust for safe keeping. © Bankrate.com |