Disaster-proof your finances

December 16, 2005

Well before a storm or other catastrophe hits, make sure you've battened down your financial hatches.

We've all seen recently just how devastating a natural disaster can be. Your home, office, or even your city could be destroyed in a hurricane, tornado, fire, flood, or earthquake-or, while it's not a natural occurrence, an act of war or terrorism.

Planning a financial escape route is as important as planning a physical one. "It'll enable you to retain your purchasing power, be reimbursed for losses, have funds to support yourself while you're not working, contact creditors, and, if necessary, have others act on your behalf," explains financial planner Arthur Stein, vice president of First Financial Group in Bethesda, MD.

Prepare an evacuation box

In an emergency, you'll need something in which to carry your important papers. It should be fireproof, waterproof, airtight, lockable, and instantly accessible; portable and lightest is best. (Stash it in a home office or even the attic, but never the basement, lest there be a flood.) "The reality is you may never see your home or its contents again," says Collins. "Your plan needs to be well thought-out and organized in advance."

Here's what you should store:

Cash (or traveler's checks) totaling at least a week's worth of living expenses. "Cash is king," says Collins, "and it may be your only way to make purchases if a disaster results in a temporary shutdown of banks or ATM systems." Keep only small denominations of bills, especially since other people may not be able to make change. Take what happened in Jackson, MS, after Katrina hit: "For over a week, it was a cash economy," Collins recalls. "There was a run on stores, and ATM and debit readers weren't working."

Financial statements (including PIN and account numbers for checking, savings, and investment accounts). Instead of copying your statements, you may be able to scan and store them on a CD-ROM, floppy disk, or USB flash drive. As a backup, Collins suggests you mail the photocopies or digitally saved data to a trusted family member or adviser who lives out of state.

If you have stock and bond certificates, though, they'd be better off out of your hands. "If they're destroyed, it might be difficult to establish ownership," says Stein. "Give the actual certificates to your broker."

A household inventory (a list, photo, or video of valuables) is essential and should be updated once or twice a year. (Ask your homeowners insurer if the company provides its customers with inventory kits.) For insurance purposes, include proofs of purchase, receipts, or estimates of replacement cost. These, too, can be scanned to a type of computer data storage device if the paperwork will take up a lot of room in your evacuation box.

Legal, insurance, and other important documents. Store copies of mortgages, deeds, wills (and other legal documents such as healthcare proxies or powers of attorney), birth certificates, passports, and marriage licenses (or divorce agreements). Same with copies of insurance policies. At the very least, have the front or "declarations" page, since it contains the most important information.

If you have military discharge papers, secure them, in addition to your children's immunization records, should you need to enroll your kids in a new school.

Proof of professional credentials. Keep copies of diplomas, board admissions, licenses, society memberships, as well as resumes and school transcripts (for a possible new job search). Employment contracts, too. Again, these are the sorts of things that can be stored digitally.

The contents of your wallet. "In an emergency, your wallet may be lost or destroyed," says Stephen Collins. Take each item you carry daily-your driver's license, health insurance cards, and credit cards-and photocopy the front and back.

Contact information. Write a list of the most important phone numbers: for family and friends, as well as financial and legal advisers, insurance agents, stockbroker, doctors, pharmacies (including your prescription numbers), etc. If you carry an electronic address book, make sure the data is backed up or retrievable through some other means.

More steps to take in advance

An evacuation box isn't the only precaution you should take. Consider these, too.

Have the right insurance coverage. While most homeowners policies generally cover damage from fire, wind, explosion, smoke, etc., they usually don't cover destruction due to floods or earthquakes. Although private companies won't insure against flood damage since the potential liability to them is too great, you can still purchase this coverage from your agent; the policy itself is provided by the National Flood Insurance Program. (Check out http://www.fema.gov/nfip for more information.)

If you live in an earthquake-prone area, ask your agent about purchasing coverage-either separately or as a rider to your existing homeowners policy. In California, you can also buy it from the California Earthquake Authority ( http://www.earthquakeauthority.com).

Above all, be sure your homeowners policy provides for guaranteed replacement cost for your house, should it need to be completely rebuilt, notes Arthur Stein. "A lot of people assume they have it," he says, "but they really don't." When it comes to your possessions, insurers typically reimburse up to 50 to 70 percent of the amount of coverage on your house. So if your house is insured for, say, $500,000, you'll have $250,000 to $350,000 worth of coverage for your personal property. The policy should also provide for additional expenses for the time you're unable to live in your home.

Make sure, too, that you-and not just your personal possessions-are covered in the event that you become injured, disabled, or killed. Experts generally recommend that you have five to eight times your current income in life insurance, which is usually enough to pay for your funeral costs, outstanding debts, and the present and future needs of your dependents.

"Consider long-term-care and disability coverage as well," urges Stein. "Whatever you have in savings isn't likely to suffice if you're disabled permanently or for an extended period of time."