How to Financially Prepare for a Disaster

Nobody wants to think about the possibility of disasters, but they can happen to anyone. Weather-related natural disasters, earthquakes and fires can strike at any time. These can displace your family and cause extensive damage to your home.

There is no way to fully prepare for disaster, and despite your best efforts, you might overlook a few aspects of emergency planning. But even if you can’t plan perfectly for the worst, you can take control of your money and be financially ready for a disaster. Do not wait until you hear a warning to get ready.

Here are seven ways to financially prepare for a disaster.

1. Keep a cash stash.
Some people are not comfortable with keeping cash in the house. But a cash stash comes in handy during a disaster. A hurricane, severe ice/snow storm or earthquake can knock out power to your local area. And without power, you can’t access bank machines and withdraw cash. Emergency cash can keep you afloat until the utility company restores power. Cash is useful if you need to purchase food and supplies, or rent a hotel room. Aim for a $500 to $1,000 emergency stash, and keep this money in a secure location, such as a water and fireproof safe.

2. Know your insurance coverage.
Do not wait until after a disaster to review your insurance coverage. Having too little insurance can trigger major expenses, and if your insurance does not cover damage to your personal property, you will have to repair damage with out-of-pocket cash.

Check your homeowner’s or renter’s insurance policy, as well as your auto insurance policy. What is your deductible? What is covered under the policy? Do you have flood insurance? These are not commonly thought about questions, and most people do not think about insurance until they’re in the face of danger. Review your policies with your agent and increase your coverage (if necessary) to protect your finances.

3. Keep personal documents safe.
A file cabinet is a reasonable location to keep important documents, such as insurance policies, mortgage documents, tax paperwork and the like. But if this file cabinet is not water or fireproof, personal information can be destroyed or lost after a disaster. You want these documents to be accessible, but safe. There may be little time to grab these documents when forced to leave your home quickly. Purchase a safe that’s large enough to accommodate your important information, and then place this safe in a secure location, such as a closet. Another option: keep your information in an off-site safe deposit box.

4. Take photos for insurance purposes.
After a fire, weather-related disaster or earthquake, insurance often covers the cost to replace damaged belongings. But in some cases, you need to provide proof of ownership with your claim. Create a list of all personal belongings inside your home. Next, walk through your house and take pictures of each room. You can also take photos of specific valuable items, such as jewelry and electronics. Take pictures of the front, back and sides of your home, and photos of your vehicle. Print or burn these images to a CD, and store the photos in your safe or a safe deposit box.

5. Get payment protection.
Some credit card companies, auto lenders and mortgage lenders offer payment protection, which is supplementary insurance that pays your minimum if you’re unable to work or experience a crisis. Premiums vary depending on your balances, and because of this expense, many people decline this insurance. However, payment protection can be a godsend during a disaster.

If your home is severely damaged, or if you’re unable to work after a disaster, you’re probably unable to pay your bills on time. Defaulting triggers problems with your creditors and can lower your credit score. If disaster strikes and you don’t have payment protection insurance, contact your creditors immediately. Given the situation, creditors may temporarily suspend your payments.

6. Sign up for online banking.
Then again, maybe you have access to cash, but you’re away from your checkbook or bill statements. Online account management lets you pay your bills from any location in the world. This is perfect if a bill is due and you’re away from home. Even if you decide not to use online account management on a monthly basis, registering your accounts can ensure the timely arrival of your payments after a disaster. Tip: Keep a record of your login information.

7. Get an emergency credit card.
Regardless of whether you prefer cash, always have an emergency credit card as backup. There is no way to predict the aftermath of a disaster. Some people have to leave their homes and stay in a hotel for several days, or leave their local areas altogether. An emergency disaster fund helps meet extra expenses, but if you’re displaced for longer than a week, there’s the possibility of running out of cash.