Family Finance: Prepare for the Worst

Denise Trowbridge
Denise Trowbridge

On Friday, Aug. 27, 2005, my husband and I went to dinner, then dancing, with friends. The next morning, Hurricane Katrina abruptly changed course, and the city of New Orleans issued a mandatory evacuation order. By lunchtime, we were in the car with a laptop, two cats and an overnight bag—scared, but still convinced the storm would turn at the last minute and miss our beloved city.

It didn't. It destroyed homes and upended lives. Families in other states recently experienced this with hurricanes Harvey and Irma. Those storms are a stark reminder that we're powerless to prevent disaster, whether it's a hurricane, tornado or a car accident.

A few minutes of preparation and review can go a long way in protecting your family and your assets. If you're thinking, “We're in Ohio. Hurricanes and earthquakes are for the coasts. We're safe!” you're wrong. Ohio gets plenty of floods, storms, hail and tornadoes. And yes, even hurricane damage.

The remnants of Hurricane Ike in 2008 caused $1.3 billion in insured property damage and losses in Ohio, and that doesn't include flooding, according to the Ohio Insurance Institute, an industry trade group. Hurricane Sandy caused $292 million in losses in Ohio. The Xenia tornado in 1974 amounted to $1 billion in losses, adjusted to 2012 dollars. Thunderstorms in late June 2012 caused $845 million in losses.

“Disasters are just like lotteries, except people lose when their number comes up,” wrote Jay Zagorsky, an economist at the Ohio State University, in a recent article in The Conversation US, an academic news site.

Don't be caught off-guard. Here's what you can do.

Check your insurance coverage. Don't assume your homeowners or renters insurance covers everything. Flood damage? You'll need a policy from the National Flood Insurance program. Sewer drain backup? You'll need what's called an endorsement, which is an extra-cost add-on to your primary policy. Earthquakes? You'll need an add-on for that, too. (And yes, Ohio is prone to quakes. We're not far from the New Madrid fault line.)

The only way to know what is and isn't covered is to read your policy, but you'll need to understand the terms insurance companies use. For example, most property policies pay “actual cash value” for losses. That isn't the full cost of replacement. (That's called actual replacement cost, and it's usually an add-on.) Actual cash value is the value minus depreciation, which means you could be left with a huge gap in the cost to fix your house.

Check your car insurance, too. If a vehicle is damaged by a flood or storm, you may be out of luck unless you have comprehensive coverage. Even then, only the perils listed in the policy will be covered.

The Ohio Insurance Institute has helpful information about standard policies

Prep work is key.Having up-to-date insurance coverage is only one part of a disaster plan. Home maintenance is important as well. Trimming trees can prevent branches from falling on your house and car during storms. Cleaning the chimney could prevent a house fire. Cleaning gutters can prevent ice dams.

Manage important papers. Take the time to organize and store financial and personal documents. A fireproof document box is a good place for insurance policies, birth certificates and passports. Copies of insurance documents and photos of your house, which can be used to verify losses in an insurance claim, can be kept online.

Don't forget sentimental papers. Many of my friends whose homes flooded during Katrina miss their photos and keepsakes the most. These days, it's easy to store digital backups of important photos in the cloud or on a flash drive.

Have supplies.The Federal Emergency Management Agency advises people to assume help isn't coming for at least 72 hours after a major disaster. The Department of Homeland Security suggests everyone have a disaster kit that includes items such as bottled water, food, first-aid kits, flashlights and battery-powered radios. If a member of your household requires oxygen or medical equipment, a generator might be a good investment as well.

Have a plan. Stuff can be replaced. People can't, so the most important disaster prep is to have a plan for your family. For instance, do you and your children have a meeting place outside in the event of a fire? Does everyone know the safest places to ride out a tornado? The Red Cross has a disaster plan worksheet

A plan costs nothing, but could save the most valuable asset you have: the people you love.

Denise Trowbridge is a self-professed money geek who writes about personal finance, banking and insurance. Follow her on Twitter at @DeniseTrowbridg.