Disaster Preparation From a Financial Standpoint
Farm Business Management Update, June 2002
By Alex White
Disasters happen - not much you can do to stop them. But you can take steps to minimize the trouble, heartache, and costs associated with a disaster. The better prepared you are, the easier it will be to recover. Here are a few tips for preparing for a disaster from a financial standpoint.
First, plan for the unexpected. Take a look at your family and your lifestyle to determine what disasters might be likely to impact you. For example: do you work in a high-risk industry; do you live in a flood plain or hurricane zone; do you travel domestically or abroad on a frequent basis. Once you identify the disasters that are most likely to affect you and your family, examine methods of reducing the impacts of those disasters. From a financial standpoint, this planning may involve use of legal documents, insurance products, and access to emergency cash reserves.
Adults (over age 18) should think about having a power of attorney (POA), advance medical directive (AMD or living will), and a will. A POA gives someone of your choosing the legal authority to make decisions for you in the event that you are unable to care for yourself (for medical, mental, or physical reasons). An AMD tells your doctors and family what level of care you would like when your death is imminent and inevitable. A will is an important document if you have dependents and a sizable estate. One of the main purposes of a will is to name guardians for your children in the event of your death.
These documents specify your wishes ahead of time so that your family knows your desires. These documents can greatly reduce the stress your family faces at an emotional time. They can also significantly reduce some of the expenses your family might incur after a disaster.
Closely examine your current insurance products to determine if they are capable of reducing the impacts of the major risks you face. Some of the more important insurance products for most adults are homeowners/renters insurance, health/medical insurance, and disability insurance. These products can minimize the costs and inconveniences of a disaster. If you live in a "threat zone" (a flood plain or hurricane area) you might consider specialized insurance products such as flood insurance.
Contrary to popular belief, not everyone needs life insurance. You may want to consider having life insurance coverage if you are the main earner for your family, if you have dependents, and if you have a significant level of debt.
Make your insurance agent earn his/her keep. Ask your agent detailed questions about your policies to determine what events are covered and if you have the proper types of coverage.
Emergency Cash Reserves
As in bad economic times, those who have cash during a time of emergency are in a much safer financial position. Prepare for a disaster by building your liquid account (emergency fund) to at least one month worth of living expenses. Also, you might consider having access to credit for emergencies. It may be in the form of a credit card, debit card, margin loan, or a line of credit. Be sure you can get access to your emergency funds in the event of a disaster. They won't do you any good if you can't get your hands on them.
Emergency Financial Kit
Preparing for disasters is the best way to recover from or avoid disasters. Everyone agrees that you should have a First Aid Kit handy in case of emergency. Why not have an Emergency Financial Kit? An Emergency Financial Kit (EFK) contains copies of important documents, list of important contacts, and possibly a small amount of cash or a credit card. The purpose behind an EFK is to have a folder or brief case of important financial information and resources that you can "grab and go" in case of an emergency.
Suggested items to include in your Emergency Financial Kit are:
This kit will contain a lot of personal information that should be "for your eyes only." Be sure to keep your Emergency Financial Kit in a safe, secure place at home to prevent it from falling into the wrong hands; however, be sure that you can get to your EFK in a hurry in the event of an emergency.
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