The massive Fort McMurray wildfire in Alberta, Canada, is a warning to all of us about how quickly disaster can engulf a community. Earthquakes, floods, tsunamis, hail, hurricanes, tornadoes and lightning strikes are more of the nasty surprises that nature can whip up. Unfortunately, bad weather can affect anyone. It is important to prepare for both large-scale and small-scale natural disasters so that, when the damage is done, you have the means to pick up the pieces and rebuild your portfolio and your life. In this article we will look at what you need to do to make sure your financial interests come out on top after any of these uncontrollable events.
Be Sure of Your Insurance
It is a common recurring theme in every area struck by a natural disaster that a) no one saw it coming, and b) no one was properly insured for it. Sitting in our dry and cozy home, it can be easy to feel smug by comparison, but the truth is that almost everyone can be under-insured for a true disaster. The biggest wake-up call is the fact that homeowner's insurance covers a very limited set of circumstances – fires from faulty wiring and such – that doesn't include all the natural disasters that your area may be prone to. (To learn about insurance basics, read Find the Best Homeowners Insurance and Five Insurance Policies Everyone Should Have.)
In Pictures: 10 Ways to Prepare for Nature's Worst
Full Replacement Coverage
At the very least, you should have full replacement or replacement cost coverage. This policy will cover the cost of replacing your home or other insured buildings. Pay attention to the limits of the policy because they will define what kind of further coverage you need. Earthquake and flood insurance are sold as separate policies and, although the premiums can be high, you should buy them if you live in an area that regularly suffers such disasters.
If you are new to the area, the local library archives will have environmental data that will help you look into what kinds of natural disasters have occurred in the area in the past. (Keep reading about this in Insurance Tips for Homeowners and 15 Insurance Policies You Don't Need.)
Once you have your home covered with all the relevant policies, you will need to have your home reassessed every few years so that the policies reflect the true value of your house. Also, if you do major renovations, such as installing hardwood flooring or finishing the basement, you will need to update the policy. There is a more extensive home insurance policy available called a guaranteed replacement cost policy. This policy will rebuild your home, and may include improvements dictated by changes in the building code (something other policies may omit), but it is not available everywhere.
Covering Your Possessions
For the best insurance records, consider keeping a detailed list of the contents of your home and update it yearly. The list should include serial numbers, photos and descriptions of everything, even the fixtures. This will expedite the processing of any claim you may file and serve as documentation for your tax losses and deductions.
The best way to make sure your list is accurate is to ask your insurance agent what he or she wants to see in a claim. For more expensive items like jewelry and costly electronics, you should consider separate coverage over and above the basic coverage of the items in your house (items that are likely depreciated yearly by your insurance policy). If you have a home office, you can get affordable business coverage to cover the equipment that you use for the business, rather than putting it under your basic home policy. (To find out which deductions can help your home office, read Don't Overlook These Broker Deductions.)
Renting? You Still Need Coverage
The insurance that your landlord carries will cover damages to the building, but not your possessions. Therefore, if you live in an area that's prone to natural disaster, you should consider renters insurance. Not all policies are created equal; if you get a bare-bones policy that just covers the replacement cost of your stuff, you will be missing possible coverage for the relocation to another area or the living costs while you wait for your apartment to be repaired. Renter's insurance can be pretty cheap, so shop around for the best policy and the best price. Reading 6 Good Reasons to Get Renter's Insurance can help you get started.
With the exception of your will, which should be kept by your attorney or at the local registrar's office, you should rent a safety deposit box for the originals of all other important documents. Keeping them in your home puts you at risk of having them stolen, destroyed in a fire, swallowed in an earthquake and so on. This includes everything from your home's deed to your marriage license.
One good idea would be to make two extra copies of all of these documents and leave one set with your attorney or a trusted friend/relative. The second set will be placed in your emergency kit. (For more, see Three Documents You Shouldn't Do Without, Protecting Your Financial Documents from Disaster and Building an Emergency Fund.)
Emergency Kit and Your Wish List
An emergency kit is a small and compact package of things that you want to bring with you in the event that you and your family need to flee from a disaster. Your emergency kit should be a box small enough to run with. Making a pack that is waterproof with a lock would be a plus, but a child's plastic lunch box will do in a pinch. Inside should be:
- Copies of all your important documents (home's deed, marriage license, credit cards, passports, birth certificates, etc)
- Your credit cards and enough cash (or even traveler's checks, which are more secure than cash) to make it through a few days at a hotel
- Copies of any prescriptions and your health and dental insurance cards
- Computer backups of your financial records (if you have them) or copies of the first two pages of your most recent federal and state income tax forms
Also, make a wish list of items to take in the event that you have the time to collect a few select items before you need to flee. This can be negatives or CDs of cherished family photos (unless they are all in the Cloud), jewelry or whatever else is important to you and can be quickly stuffed and carried in a small bag. It is easier to make the decisions now, when the roof and walls aren't falling in around you and your loved ones. Post the list somewhere easy to find, like a kitchen bulletin board.
The Bottom Line
While preparing for an unexpected disaster sounds impossible, there are many things that you can do. By taking the steps mentioned above, you will be better able to rebuild after the event. If you are a homeowner, you can go even further. There are many upgrades, such as hurricane shutters and moving your wiring so it runs in the attic, that will minimize the damage of most natural disasters. As a bonus, these same upgrades will lower your insurance premiums.
Building inspectors, workers from your utility company and a local firefighter will be able to tell you what changes you can make to protect your home and the people in it. For more information, check the out the Federal Emergency Management Agency (FEMA) website.