|Get your finances in order before
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
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
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.