Get your finances in order before disaster strikes
By Ellen Goodstein • Bankrate.com

When Mother Nature hurls a nasty surprise your way -- as in a hurricane, tornado, earthquake, flash flood or forest fire -- would you be financially prepared to weather the storm?

Hurricane Katrina served as a wake-up call for everyone -- particularly for people who live in areas prone to natural disasters. The damage caused by this powerful storm was estimated to be more than $34 billion in insured losses, analysts say. And the California fires of 2007 are expected to cost tens of billions too.

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.