Survive Life's Financial Emergencies

Expert tps for what you can do to protect your finances before the worst happens.

by Jean Chatzky
Photograph: Illustration: Jonathan Bartlett

If it seems as if the incidence of natural disasters has increased, you’re right. The world now averages 400 to 500 a year, according to Oxfam, compared with about 125 a year in the early 1980s. To protect yourself, look at your home-owners’ insurance policy and make sure you have the right “property/casualty” clauses. The key: You should be covered for replacement value, which pays to replace what you lost in a disaster (both the dwelling and the stuff inside, which is typically covered for 50 percent of the value of the house). What you don’t want is cash-value coverage, which pays only the depreciated value of what you lost. Basically, you want enough insurance money to cover the cost of a new flat-screen TV rather than just the cash value of the old model you lost.

Next, if the value of your house has increased since you bought it, make sure you’ve adjusted your homeowners’ coverage to keep up (and if the value has fallen significantly, see whether you need less coverage). In any case, remember you need to insure for the amount required to rebuild and replace what you have. And if you are in an area where you could have a flood, buy flood insurance even if your mortgage lender doesn’t require it. Almost 25 percent of all flood-insurance claims come from areas where the risk was only low to moderate. Says McClan­ahan: “In Hurricane Katrina, insurers and customers kept arguing over what had damaged the house. Was it flood [covered by flood insurance] or wind [covered by home­owners’]?” In many cases, people who had just one type of insurance were left with no payoff money at all. “If you have both types,” McClanahan says, “someone will pay.”

It’s important to be aware of what your possessions are worth. If their replacement value is significantly more than 50 percent of what your home is worth (which is covered in the replacement-value policy), you’ll need your homeowners’ policy to include contents coverage to make up the difference. If you rent, buy renters’ insurance. To make replacing all your possessions easier, create a photo or video record of what you own and keep it in a safe place outside your home. “A lot of people put this information on their computer, but if that’s in your house, it’s not any good,” Goldstick says. “Instead, keep your photos safe on a website like Shutterfly.”

Take similar precautions with your important documents. Scan copies and keep them in an “online vault,” such as the estate digital lockbox at myestatemanager.com, that offers secure data storage. Or e-mail the scans to yourself if your provider offers free unlimited storage (as Yahoo! and Gmail both do; Gmail has a 25-megabyte limit for attachments). As for the originals? “My family keeps those documents in a plastic bag, and that’s one of the emergency items we take with us when we have to leave the house,” Goldstick says. They are almost as important as food and water.

If a disaster does occur, call your insurer immediately. Take pictures of the damage and create a written record of the destruction. Make two copies of your documentation: one for your adjuster and one for yourself. If you start making temporary repairs on your own, keep all the receipts, then give them to your adjuster so you can be reimbursed.

Originally published in the September 2010 issue of More. Read more of Jean Chatzky's columns here.

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