When your family is confronted with a disaster, once life and limb are made safe and basic needs like warmth, shelter, nutrition and hydration secured, reality may start setting in and you realize, “What is this going to cost me?” Not all disasters involve weather catastrophes, but even the ones that do often turn into financial emergencies pretty quickly.
Is your home underwater or beneath a pile of rubble? Will you have a job to return to once the roads are clear and life returns to normal? Besides the obvious short-term expenses, are there new long-term commitments that will affect your budget for months and years to come? Or, if you are gone, will those you left behind be provided for?
One of the most important ways to prepare financially for disaster is the common sense financial advice, like live within your means, get out of debt, save for retirement, etc. Let’s assume you have the basics down, even if your application of them is less than perfect.
However, in the case of an emergency, make sure you have some cash on hand. It does not need to be a lot, but it’s best in small bills and coins; whatever commodities are going to be available, cash may be the only way to pay for them.
It’s also a smart play to get copies of critical documents like mortgages, birth certificates, etc., and have them at a safe place other than your home. A safe deposit box at the bank is fine, but at least have a copy with your 72-hour kit for financial emergencies.
Another big consideration is insurance. Insurance is a hotly debated topic these days, but unless you have the financial resources to repair your car, rebuild your house from scratch, or provide for your family if anything happens to you, then you need to make sure you are adequately insured.*
First up, homeowner’s insurance:
- Read the policy. Know what it covers and what it excludes. Pay special attention to coverage involving water since every company covers and excludes different things. If you don’t understand it completely, ask an experienced insurance agent. If a coverage that is excluded is important to you, you can shop around for different plans or ask if the coverage is available for an additional premium. Also, most policies limit coverage for such things as art, computers, guns, jewelry, and other high value items. Coverage for these items is often available for an additional price.
- Make sure your home can be rebuilt with the coverage you have. If you have the same coverage amount as you had several years ago, you may not have enough to rebuild your home in case of a loss. As property value increases, so should your coverage.
- No homeowner’s policy covers floods. You can buy flood insurance, but know you are buying it from the government. If you live in a low risk area, it’s pretty inexpensive. If you live in a high-risk area, not so much. However, it is cheaper than watching all your belongings float away and knowing you won’t be compensated.
- Earthquake coverage is also extra, and very few areas in the country are immune to earthquake risks. In 2011, Washington D.C. and Oklahoma, two areas not usually associated with earthquakes, had temblors strong enough to cause at least some damage. The terms of earthquake insurance are different than that of regular homeowner’s insurance and vary from company to company.
Believe it or not, auto insurance is a financial emergency preparedness issue as well. They key here is to look at your liability coverage. This is how much insurance you have purchased to pay the other person if an accident is your fault, and most people don’t have near enough to cover a serious accident. Without enough coverage, you could possibly lose your home, your savings, your retirement funds and even personal belongings. Since most accidents are for lower amounts, buying higher coverage is usually not that expensive, but if you are in a bad accident with multiple vehicles and injuries, having enough coverage is going to be dirt cheap compared to the alternative. Talk with your insurance agent to make sure you are fully covered.
Finally, the last consideration is life insurance. If bought when you are young and healthy, it is ridiculously cheap. And if you do meet an untimely end, not having life insurance will constitute a massive disaster situation for those you leave behind. Once you have a life-threatening medical issue, life insurance gets extremely expensive, if you can even obtain coverage at all. If you are older or already have health issues, group coverage at work may be a more affordable alternative.
*The National Association of Insurance Commissioners has excellent resources on insurance.