Be sure to protect your finances from disasters

While no major hurricane or tropical storm struck the United States last year, 2007 did bring us devastating brush fires in California, heavy ice storms in the Midwest, severe tornadoes in Florida and Kansas and flooding in many locations. Already in 2008, we’ve had tornadoes in Georgia and floods across the Midwest.
As if dealing with these disasters wasn’t bad enough, homeowners in the affected areas then had to experience a second nightmare: dealing with insurance companies. Talk about adding salt to the wound!
We all need to remember disasters can happen anytime and anywhere. No matter where you live, something bad can happen to your home. Every year, we experience tornadoes, hurricanes, earthquakes, floods, severe winds, hail, deep snow ‘ you name it. Homeowners who are properly prepared are going to be in a much stronger financial position following a natural disaster. Take some simple steps now to make sure that property devastation does not result in financial devastation.
First, look at your homeowner’s insurance policy. Make sure your home is insured for its true replacement cost.
A house can be valued in many ways. Forget what you paid for the house ‘ if you’ve been living in it for five or 10 years, it’s worth a lot more today than it was when you bought it. And ignore the assessed value. That’s an artificial number the local government uses to calculate property taxes.
In short, you need to insure your house for as much as it would cost you to replace the structure.
If it’s been more than five years since your home has been appraised, get it appraised again so you can update the insured replacement cost. Also talk to local real estate agents, appraisers and local builders to determine what it would cost to rebuild your house from scratch, because the cost of rebuilding could exceed the house’s current market value.
Second, document the personal property and valuables in your home. If you ever have to file a claim, the insurance company will ask you to verify and substantiate the clothing, furniture, audio/video equipment and other personal possessions you claim to have lost.
The Insurance Information Institute, an industry trade group, recommends you create and regularly update a home inventory of your personal possessions. The group says an inventory listing all your possessions and their estimated value will help you purchase the right amount of insurance, and will make the claims process faster and easier after a fire, hurricane or other disaster.
The institute offers free software called ‘Know Your Stuff’ to help you compile an inventory. Download the free software from www.KnowYourStuff.org.
Keep your inventory with your important personal documents, and place a copy in a safe place outside your home, such as a safe deposit box at a bank, an online-storage service or with a friend or family member who lives in a different area. The institute also offers useful information about planning for a disaster at www.DisasterInformation.org.
You need to do disaster planning for your ‘identifying documents’ as well ‘ items such as your Social Security card, birth certificate and passport.
The Identity Theft Assistance Center says people who are forced to evacuate often leave behind their critical identifying documents. But you’ll need those documents to get government benefits, file insurance claims and open new bank accounts.
Disasters can take an awful toll, but your finances do not have to be a victim. Be smart and stay prepared.
Ric Edelman can be reached at [email protected].