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If you had 10 minutes to evacuate
your home during a natural disaster, what would you take with you?
Where would you get cash if ATM and credit card networks were down?
Would your insurance be adequate to rebuild your home?
Obviously, the safety of you and your family is your
first concern -- but ensuring your financial security is second. As
a certified financial planner based in disaster-prone Southern
California, here's what I tell my clients...
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Keep enough cash in the house
for a weekend away. It can take that long after a disaster
for merchants to be able to accept credit or bank cards.
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Also keep $300 in one-dollar
bills on hand. Reason: Stores may not be able to make
change. After the last earthquake in this area, some people had
to hand over $20 bills to pay for a carton of milk or a bottle
of water.
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Keep important items in a
secure, fire-safe box near the front door -- perhaps in a
coat closet. (Keep original documents in a safe-deposit box or a
fireproof safe.) The box should be lightweight so that you can
carry it to your vehicle in an emergency. It should contain...
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Legal papers. Copies
of titles to your home and vehicles, marriage and birth
certificates, passports, insurance policies, military and
medical records, Social Security cards, driver's license
numbers, wills and powers of attorney.
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Extra supplies of
medications if your doctor will prescribe them. Rotate
them monthly so that the newest medication always is
available. Also keep lists of medications, doctors' phone
numbers, etc. People with extreme allergies should include
Epi-Pen injectors.
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Financial records.
Copies of credit card and employee benefit statements,
household budget, tax returns for the last three years,
contact and account numbers for financial accounts.
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Key to your safe-deposit
box, if you have a box.
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Extra checks.
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Inventory of household
possessions, including professional appraisals for
valuables, such as jewelry and antiques, and receipts for
the cost of major home improvements, such as kitchen
remodeling or a new deck.
Helpful:
Use a digital camera or camcorder to record your
home's contents for insurance purposes. Go room by room, giving an
audio or written description of the approximate cost, condition and
age of each piece of furniture, appliance and decorative element --
even towels and clothing. Send a copy on DVD or CD to your insurance
agent, as well as copies of receipts for big-ticket items, to
expedite future claims.
While many documents may also be stored in a bank
safe-deposit box, keep in mind that your local bank could be closed
for several days or weeks after a disaster.
Backup plan:
Scan documents into a single electronic file, and save
it on your computer hard drive. Regularly back up the file to a
removable flash storage device that you can take with you in the
event of a disaster. These portable devices are the size of a
cigarette lighter and plug into your computer's USB port. They are
available for about $50 in electronics or office-supply stores.
Maintain an
emergency fund.
Keep three months' to a year's worth of basic living
expenses -- rent/mortgage, food, insurance, etc. -- in safe, liquid
investments, such as short-term CDs and short-term municipal bonds.
This will protect you from a disaster as well as a loss of income --
if your place of work is damaged, you may be without a paycheck for
some time.
Also: Recent laws have forced all financial
institutions to implement disaster-continuity plans. Obtain copies
of the plans from your bank and brokerage house to learn how to
access your money after a disaster.
Make Sure
You Qualify.
If you live in a disaster-prone region, look into
retrofitting your home with the help of government loans. Consult a
home inspector about what steps to take. Mortgage giant Fannie Mae
and the Federal Emergency Management Agency (FEMA) offer 10-year
predisaster-mitigation loans from $1,000 to $20,000 for projects
such as reinforcing roofs, installing flame-retardant shingles and
elevating a building.
Such upgrades can substantially reduce insurance
premiums. Mitigation loans have no minimum income requirements,
closing costs, annual fees or prepayment penalties. You don't have
to risk your house as collateral, as you do with a home-equity loan.
Terms: 9% to 12% fixed rate for the life of the loan. For more
details, contact FEMA at 202-566-1600 or 800-621-3362 or
www.fema.gov (search for "Project Impact Prevention Loan").
Check Your
Insurance.
Make sure your homeowner's insurance includes
appropriate disaster coverage. Depending on where you live, you
might need flood insurance through the government's National Flood
Insurance Program (annual premiums of $300 and up) and riders for
hurricanes and/or earthquakes ($2,500 a year and up for a $200,000
home with a $10,000 deductible). Such riders are expensive, but
losing everything because you're not covered is more expensive.
Smart: Increase your deductible to $3,500. Premiums drop at that
level, making riders more affordable. For more information, contact
FEMA.
Make sure you have "replacement value" coverage that
pays you the amount necessary to replace articles with ones of
similar quality at curent prices. Check that you will be reimbursed
for living expenses if your home is damaged and uninhabitable. Cost:
Less than $100 in annual premiums for $10,000 of cover.
If you have a home office, you will need a commercial
policy to cover damage to business-related equipment. (Homeowners'
policies do not cover home-based businesses.) Many homeowners'
policies limit replacement of computer equipment to $2,500. You can
double this coverage for $20 to $30 per year.
Helpful
resources:
Download Disaster Recovery: A Guide to Financial Issues, free from
the American Red Cross,
www.redcross.org/services/
disaster/beprepared/finrecovery. FEMA also offers Are You Ready?
-- a free guide to disaster preparation.
Bottom
Line/Personal interviewed Nigel B. Taylor, CFP, Santa Monica,
California. His wealth-management firm, Taylor & Associates, serves
individuals, families and businesses. He is former president of Los
Angeles Society of the Institute of Certified Financial Planners.
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