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Batten Down Your Financial Hatches

Check your flashlights and stock up on bottled water: Hurricane season is again upon us.

Weather experts are calling for another active hurricane season, which officially begins today, June 1. Even though last year gave most of the U.S. a breather compared to 2005's monster storms, meteorologists are projecting as many as 17 named tropical storms and 10 hurricanes this year. Bear in mind that just one storm can knock the wind out of your financial sails.

Yikes! Many of us are still waterlogged from past seasons. We've learned a few things, though. We only want to see a tree in our house at holiday time, for one thing, and the extra-heavy outdoor furniture we splurged on seems like less of a good idea when we're lugging it inside as those cruel winds begin to blow. We've also become a bit wiser about how not to get soaked financially.

There's one good thing about hurricanes: You usually have enough advance notice to prepare yourself. Other disasters, such as earthquakes and tornadoes, strike with little warning. That's why it's a good idea for all Fools to be prepared. We'll leave it to others to teach you how to shore up your roof and suggest how much water to stockpile, and you can decide whether you'd prefer to dine on canned tuna or cold cereal while the power is out. For our part, we've come up with seven Foolish steps you should take now to prepare yourself financially to weather a natural disaster:

1. Protect your property. Make sure your home and business are up to current safety codes. Consider having your home evaluated by a building inspector to find out whether any structural improvements could prevent or reduce major damage from disasters. Save your contracts and receipts from any completed work, because you might be able to use these to lower your insurance premium or claim tax deductions.

2. Maintain adequate insurance. Review your homeowner's insurance and understand what is covered. Many hurricane victims (yours truly included) were surprised to learn that damage to pools and docks was not included in our policies. Decide whether you need additional coverage for other assets, such as your home office, jewelry, or that special collection of vintage lunchboxes. Have your home reappraised periodically to make sure the policy covers its real replacement cost. If you're a renter, consider purchasing renter's insurance, which pays for your damaged or lost possessions. Check out our Insurance Center for lots of information.

Flood insurance is crucial -- even for Fools who don't reside in flood zones. According to the Federal Emergency Management Agency, 25% of all flood claims occur in low- to moderate-risk areas. At an average annual premium of $400 for approximately $100,000 of coverage, it might make you sleep a bit better. As with all these tips, don't wait until you feel the raindrops. There's normally a 30-day waiting period between the time the policy is purchased and the date coverage becomes effective. In some areas, no new policies are written once the official hurricane season begins.

3. Hoard cash. Cash is king -- never more so than during an emergency. Instead of facing long lines and potential shortages, go to the bank now. Withdraw at least $500, in small denominations, or a larger amount if possible, since you might need to cover expenses like food, shelter (you may need to evacuate), and gas for at least a week. Even though a storm may be over in a day, its effects often last far longer, with electricity and telephone outages downing both ATMs and computerized bank networks.

This cash should be in addition to the emergency funds you should have already Foolishly siphoned away. Check out our Short-Term Savings Center to learn more about emergency funds. You may need to call on those funds if your job or business suffers from the immediate or long-term impact of a disaster.

4. Go shopping. If you don't already have shutters, go now and purchase plywood for boarding up windows and doors. It won't be there at the same price (if at all) when you really need it. Buy extra flashlights, batteries, and tarps. Some states offer tax-free shopping periods for storm-preparedness items.

5. Inventory and document your possessions. Haul out that camera and visually document your belongings, including any outdoor furnishings. Then comes the hard part: Write a description of each item, as fully as possible, including where you bought it, how much it cost, and its model and serial number. Also, locate any purchasing records. Obtain updated professional appraisals for significant assets. These records may be vital to helping substantiate losses later with your insurance company -- or to claim tax deductions.

6. Put together an evacuation box. Buy a lockable "evacuation box" to grab in the event of an emergency. Keep this box with you at all times -- do not leave it in your car when you stop for a bathroom break or overnight at a motel. Remember that your car will be stuffed with other supplies (and your family), and space will be tight. The following important papers and items should be placed in the box, preferably in sealed, waterproof bags:

  • The inventory records mentioned above.
  • Any significant documents not already stored in a bank safe deposit box, such as birth and marriage certificates, legal documents, passports, Social Security cards, mortgage and property deeds, stock and bond certificates, car titles, and insurance policies.
  • Safe deposit box key.
  • Significant business records and computer disks.
  • A list of all financial accounts, loans, credit cards, and related telephone numbers.
  • The first two pages of the previous year's federal and state income tax records.
  • A list of emergency contacts, including your local insurance agency and its national office.
  • Checkbook and postage stamps.
  • Disposable camera to photograph any damage to your property upon your return.

7. Protect your credit and portfolio. Keep those credit cards paid off so you'll be able to draw on them if needed. Make sure your other bills are paid off on time, and anticipate any that may come due while you might be away. (We were assessed late charges from one creditor for a bill we never received because our mailbox had blown away.) Review your investment portfolio, and place any stop-losses necessary to prevent you from having additional worries.

One final note: Should you incur damage, make sure you check out the business credentials of repair workers before hiring. Affected areas are often flooded with unlicensed and uninsured contractors, and you know what happens if problems arise then: You get hosed again!

Whew! Now that you've done all that, your house may still be left twisting in the wind, but at least you won't be blown out financially. You may consider whether you want to bet on a busy season that could be good for home-repair retailers like Motley Fool Inside Value pick Home Depot (NYSE: HD  ) and Lowe's (NYSE: LOW  ) . Or you might prefer insurance companies like AIG (NYSE: AIG  ) or Berkshire Hathaway (NYSE: BRK-A  ) , another Inside Value pick, which tend to do well during calm seasons.

For related reading, see:

For more helpful tips on staying prepared for whatever life may bring you, giveMotley Fool Green Light a try. The Fool's personal finance newsletter will give you useful advice every month to guide you toward a better financial picture for you and your family. Try it free for 30 days on us.

This article was originally written by S.J. Caplan and published on June 1, 2005. It has been updated by Dan Caplinger, who owns shares of Berkshire Hathaway. The Fool has a disclosure policy.  


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