Will your money survive a hurricane? 3 steps for financial readiness.

There are hundreds of articles online to help you pack your emergency supply kit and calculate how much drinking water you need on hand in case of a disaster. But what do you need to do to be financially ready?

Would your finances survive a natural disaster?

In the wake of recent hurricanes, that is not an idle question. Disaster strikes quickly, and those with a plan and early groundwork have a better chance of emerging, regrouping and rebuilding. This goes beyond packing an emergency supply kit, creating a family plan in the event of a natural disaster, and learning how to turn off your gas and water. You need a financial survival plan, too!

Step one, check your insurance policies.

This may sound obvious, but many of us have made insurance decisions years ago and have lived on “insurance autopilot” since. Ideally, you need to review your coverage every year (more frequently if your circumstances change). Here is a run-down of policies to consider.

Property and casualty insurance.

If you own a home, review your coverage. Just because you have “an insurance policy” does not automatically mean that you are covered in the way you assume! For example, if your insurance policy states that you will be reimbursed for the market value of the damage, you will get a payment equal to the replacement cost (i.e. what it would cost you to replace the item) less any depreciation for the years you owned the item. Yes, what you get will be less than what it will cost you to replace the item. Also find out if your policy covers the cost to haul away the parts that are damaged beyond repair. Check your policies carefully!

Next, review the circumstances that you are covered for. Fire coverage is fairly standard, but is flood damage included in the policy? How about tornado or earthquake damage? Understand your limits and deductibles, as well – you will have to be prepared to cover certain expenses before the policy kicks in.

Finally, understand what items are within the scope of the policy. Some policies exclude computer equipment, jewelry and artwork.

Renter’s insurance.

If you don’t own a home, look into renter’s insurance. It will help you pay for damaged, destroyed or stolen personal property. Understand what items are and aren’t covered, and whether the policy will help you pay for another place to stay if your apartment becomes unlivable. Some policies even cover relocation expenses. Read the documents carefully to be clear on specifics and limits.

Life insurance.

How much life insurance is the right amount? Talk to your financial planner or CPA, as everyone’s case is different. You will have to consider the number of people who depend on you for financial support, your spouse’s ability to work and earning potential, you debts, etc. Life insurance is not right for everyone, but opting out after having considered the facts is not the same as neglecting the subject altogether.

Disability insurance.

If you were injured in a disaster and unable to return to work, what options would your family have to make ends meet? If you do not have a disability policy, begin by shopping for a group policy, as it is more likely to offer advantageous rates than an individual policy. Look for a policy that covers “own occupation” (which means that you will be paid if you are unable to work in your main line of work, even if you could hypothetically do other kinds of work instead). Does the policy protect you in case of partial or residual disability, where you are able to work but not at full pre-injury capacity? Understand what protection you are buying to avoid unfortunate surprises when you are least equipped to handle them.

Step two, know your valuables.

What would you save from a burning house, beyond people and pets?

We all have things that we value for sentimental reasons, as well as items that are objectively valuable in terms of cost. Go through your home and compile an inventory of things that you would want to be reimbursed for if they were lost, damaged or stolen. Go room by room, check drawers and boxes, photograph items that are particularly valuable and receipts that go with them.

This is a time-consuming project, so use your judgment to help manage your efforts. A single photo of a closet may be enough to estimate how many shirts and slacks you have, but that evening gown or designer suit may warrant its own close-ups.

Finally, know where your documents are.

A filing cabinet with the house deed, a car title and pictures of antique silver that has been in the family for 4 generations will do you no good if it’s under 5 feet of water. Same goes for your children’s birth certificates, your marriage license and insurance policy paperwork. Consider making copies of critical documents and storing them in a secure location (like a bank deposit box, or a secure safe box that’s water-tight and built to withstand high temperatures).

You might also scan important documents into a secure cloud storage solution like Evernote. Evernote has an added bonus of allowing you to “tag” your scans and documents to keep them at your fingertips no matter where you are.

One last point about the money.

No article about emergency preparedness is complete with the mention of an emergency savings account! Getting payments from the government or your insurance company will take weeks. In the meanwhile, your savings is what you’ve got. Build up a healthy balance in the account (I recommend 3-6 months’ worth of living expenses) and don’t use it unless you absolutely have to.

Finally, if a natural disaster affects power in your area, you won’t be able to get money out of the bank’s ATM. Keep a sufficient amount of cash on hand to get through 1-2 weeks.

Emergency planning is something we do hoping that we won’t ever need it. With that in mind, go through the checklist now. Even if you are unable to do everything on the list, it’s still better than being completely unprepared.

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