Disaster-Proof Your Finances

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 the storm?

Hurricane Katrina should serve 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 is estimated to be
more than $34 billion in insured losses, analysts say.

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 by fire.

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.

4.
Take a home inventory

Make
a visual record of your possessions with a still or video camera. Go
room-by-room and take an inventory of all the items inside. Describe
the item, its cost and when you bought it. Note any serial numbers or
model numbers. Photograph the exterior of your house, including
landscaping, patio, fencing and sprinkler system. Include automobiles,
boats and RVs in your inventory and photographs. Review your inventory
every two to three years to keep it up-to-date. Augment the video or
photographs with a written record. List each item and its value as well
as any identifying numbers where appropriate. Put your inventory
records in a safe place such as a safe-deposit box.

5. Get a professional appraisal 

Jewelry,
art, coins, stamp collections and other valuables may need a
professional appraisal to support any insurance or tax deduction
claims. Be sure your current insurance policy provides adequate
coverage limits for these items, or have riders for them.

6. Keep copies of all financial
records in a safe place

Goldfarb
suggests using a service that scans all of your important financial documents
and keeps them in a secure vault on a Web site encoded with special
passwords.

"A secure Web site is impervious to
weather conditions, a local disaster or even the failure of your hard
drive. You can scan anything -- passports, birth certificates, life and
homeowners insurance policies, marriage licenses or wills. Almost
anything that's written can be stored and easily available to you from
a computer."

If you don't want to pay a monthly fee for
a service, Goldfarb suggested scanning the documents yourself and
burning your own CD with copies of all important financial documents.

Be sure to keep the CD in a safe-deposit
box or other secured location not in your home.

You can also get a booklet from your
insurance company where you can record all account numbers and policy
numbers and household inventory and other relevant financial
information. Give it to someone you trust for safe keeping.

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