You have your water, your flashlights, your "go-bag" of emergency supplies, but are you financially ready for a natural disaster? The massive floods in Louisiana are just the latest example of how important this is.
If you need to evacuate, file an insurance claim or apply for an SBA disaster loan (they’re for homeowners and renters, not just businesses), organizing important financial papers ahead of time will mean far less stress. Even better, you’ll be able to take advantage of these financial safety nets more quickly.
“In the event of a sudden emergency, you may have just minutes to gather your family and important papers and get out of your house, possibly for good,” points out Jeanne Salvatore, senior vice president for public affairs and chief communications officer at the Insurance Information Institute. “Don’t wait until the last minute to gather what you need.” Here are preparatory steps that disaster-planning, financial and insurance experts advise.
Take These Steps
1. Know exactly what your home or renter’s insurance covers.
Sit down with your insurance agent and go over the fine print of your policy, discussing various scenarios. “Don’t wait until you have to file a claim to find out what you’re covered for, and what you’re not,” Salvatore urges. For instance: Would your evacuation expenses be covered? Do you get replacement cost for damaged possessions or just their depreciated value? Does your policy have a hurricane deduction, which may mean you’re responsible for 2-5% of your home’s value before the insurance kicks in?
Most homeowners' policies don’t include flood insurance (unless you mean damage from a leaky pipe). For floods of the Louisiana or Hurricane Sandy kind, you’ll need coverage under the National Flood Insurance Program. But be aware: It takes effect only after a 30-day waiting period, so if you’re in a flood zone, don’t delay.
2. Create and keep an up-to-date written and photographic inventory of your home and possessions.
In the aftermath of a disaster, it may be hard to accurately recall all the contents of your home. An inventory will make the claims process a lot smoother and get you a fairer settlement. If you need to claim tax losses, it will serve as backup.
Go room to room, taking digital pictures. Open drawers and closets. Don’t forget the garage or attic. Take notes as you go along, including any serial numbers or models you know, and attach receipts or appraisals if you have them. Even better, use video, which allows you to make a commentary about items’ purchase dates and value.
Software, such as Collectify Home Inventory for Windows, Delicious Library 3 for Macs or Know Your Stuff from the Insurance Information Institute, can simplify this. The IRS website also has a downloadable disaster-loss workbook, Publication 2194, to help you compile a room-by-room list of belongings.
3. Practice the Backup 3-2-1 Rule.
For all your critical financial and legal documents and records, make three copies, in two different formats (for example, DVD and hard-drive or remote server) and keep one copy off-site. With recent disasters affecting whole regions, you may want to keep a backup disk some distance away, which can be as simple as sending it to a trusted relative in another state.
4. Protect original documents by placing them in a bank safe deposit box.
Consider one, again, that is a distance away in case the bank is as underwater as your home. If you prefer to keep documents at home, make sure they’re in a safe that is waterproof and fireproof up to a temperature of 1,700 degrees, advises "Disaster and Financial Planning: A Guide for Preparedness," distributed by the Red Cross. Keep the safe locked at all times and tell a person you trust the combination or where you keep the key.
After making copies (see point No.3), safeguard the following original documents in a safe deposit box or safe:
• Birth, death and marriage certificates
• Divorce and child-custody papers
• Adoption papers
• Naturalization or citizenship papers, Social Security cards
• Passports, green cards and military records (if you need them regularly, keep copies in the safe deposit box and secure the originals at home)
• Copies of drivers’ licenses
• Mortgage/property deeds, titles and other ownership records for cars, homes, RVs and boats
• Stock and bond certificates
• Insurance policies (life, health, disability, long-term care, auto, homeowners, renters)
• Power of attorney, living will and other medical powers, such as health proxy
• Trust agreements
• A copy of your will (Never put the original of your will in a safe deposit box because if you die, the bank may seal it temporarily. Keep it with your lawyer.)
5. Put certain essential records in a second portable waterproof/fireproof bag or box – your financial go-bag.
Store the bag (First Alert makes a variety of them) in a convenient place near the door where you can grab it as you leave in an emergency. Consider including copies of all the documents you have in your safe deposit box. Think of records you’ll need to make an insurance claim or apply for an SBA disaster loan. For instance, you may need to document your disposable income or show proof of ownership or residence. These papers might include the following.
For insurance or tax loss claims:
• Copy of your household inventory
• Warranties and receipts for major purchases
• Copy of appraisals of jewelry, collectibles, artwork and other valuable items
• Home improvements records
For loan applications:
• Your three most recent federal and state tax returns, W-2s
• Copy of Social Security cards
• Copy of deed and mortgage or lease
• Copies of insurance policies
• Proof of residence (a couple of recent utility bills)
• Recent pay stubs
• List of insurance policy numbers for auto, flood, renters' and homeowners' insurance, with the contact telephone number for each
• List of friends and relatives and their phone numbers (If your cell-phone battery dies and power outages prevent you from recharging it, you won’t have the numbers stored on your phone.)
• Copies of employee benefit and retirement documents
• Phone numbers or email addresses of your creditors, financial institutions, landlords and utility companies (gas, electric, cable)
• List of bank, loan, credit card, mortgage, lease, debit and ATM, and investment account numbers
• Extra set of house keys
• Key to your safety deposit box
• Insurance cards, copies of prescriptions
Make it easy: Use the Emergency Financial First Aid Kit (EFFAK), prepared by FEMA and Operation HOPE, to help you gather and organize all the documents that will help smooth your way in a disaster's aftermath.
6. Put enough cash in your financial go-bag for three days’ expenses for your family.
ATMs often don’t work after a disaster, or banks may be closed if power is out. Include a roll of quarters (cell phones may not be reliable either). Even when ATMs are back online, you may not have access to your mail to receive checks. Enroll now in direct deposit through your employer, or if you get any federal benefits, enroll through godirect.org.
7. Add a letter of intent to your financial go-bag in case you’re not there to help your family through a disaster.
“Think of this as something you would give to someone if you were leaving tomorrow morning on a year-long trip,” is how "Disaster and Financial Planning" describes a letter of intent. It’s not a legal document, but if you are seriously injured or worse, the instructions and information it contains will be very helpful to your family.
Include where important documents are located; the names and phone numbers of your legal and financial advisers and your employer; passwords for online accounts; a financial inventory to explain what income, investments or insurance proceeds they can expect to receive (retirement plans, vacation pay, business expenses not yet reimbursed); and which expenses will come due.
8. Be alert to scammers – natural disasters bring them out.
Be prepared to protect your personal information and finances in a disaster's aftermath. Among the scams the Federal Trade Commission alerts consumers to are: people masquerading as safety inspectors to case your house and obtain personal information; scam artists asking for fees to help you claim FEMA funds (FEMA never charges fees); and utility and repair people asking for cash or full payment for repair services before they’ve been performed. Just because your property is damaged, it doesn’t mean your good judgment can’t stay intact.
The Bottom Line
Taking the time to prepare a financial go-bag before a disaster hits will save you dollars and headaches, as well as help reduce your anxiety in what is inevitably a stressful time. If the worst happens, remember to pick up both bags: your emergency supplies and your financial backups. Equip the bags with shoulder straps so both hands will be free to manage what comes next.