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Our hearts and prayers go out to those
affected by Katrina. Many are fortunate to have escaped with their
lives. It shows us all once again that there are many things that
are more important than money. That being said, it is important that
we be prepared financially should such a disaster affect us. Read on
to learn how.
The financial impact on the lives of those displaced by Katrina
cannot be overstated. There are three stages of need in such
situations—the immediate, the temporary and the long-term. Each
stage presents different financial challenges and requires different
advanced planning.
The first thing you should do to financially prepare for disaster is
to have copies of your important legal documents in a safe place
other than your home. This includes copies of your Will, Trusts,
Powers of Attorney, and Living Will but also insurance policies,
titles to vehicles, Social Security and health insurance cards and
real estate deeds. As a service to my clients, I store these
electronically so they can be accessed anywhere at any time. These
are essential documents that may be needed in an emergency and will
be invaluable should you bear a catastrophic loss.
Secondly, you should have access to cash to aid you both in
evacuation and the immediate aftermath. When the power is out you
can’t use a credit card. If essential supplies are in great demand
they will sell to the highest bidder.
I recommend a fireproof/waterproof safe be used to protect this cash
in your home. I know of people who have built such safes into the
concrete foundation of their house. In emergency situations, cash is
king and can make the difference between being caught in the path of
the disaster or fleeing to safety.
Third, it is important that you are able to access your investments
should you need to use those funds to aid your recovery. For
instance, it will take months and even years for those affected by
Katrina to get their lives back in order. Some people think that
because they have insurance that they won’t need access to their
investments in these situations, but that’s not true.
It could take weeks or months before claims are filed and settled.
For events like Katrina, it is likely that insurance companies will
argue over whether the damage was caused by a wind event (which is
covered) or a flood event (which is not, unless you had expensive
flood insurance). Some claims will end up in arbitration and/or
court.
It is the same for transportation. Those who lost vehicles will have
to file claims and await payment. What are these people going to do
for shelter and transportation in the meantime?
That’s why access to your investments is so important. It is also
one of the reasons why I have been so vocal against investments like
annuities that force the investor to pay substantial surrender
penalties to get THEIR money. Don’t allow yourself to be in a
situation where you will lose tens of thousands of dollars in
needless penalties on top of your disaster losses.
For those ravaged by Katrina, access to their investments will allow
them to pay for transportation and temporary housing. It will allow
them to buy food and clothing and to replace all the necessities
they’ve lost. Even if some of these expenses will eventually be
reimbursed by insurance, access to these funds allows them to
quickly improve their situation.
For those who are retired, it is very difficult to recover
financially from disaster-related losses—especially if only some of
the loss was covered by insurance. Sure, you can deduct these losses
on your taxes but that is little consolation. People in this
situation will have little choice but to reduce their standard of
living.
You may never be in a disaster that can ruin you financially, but it
is only prudent that you take steps now to prepare in case the
unexpected happens. Store copies of your important documents
off-site, have ready access to an ample amount of cash and make sure
that your investments can be sold without significant surrender
penalties. These precautions will cost you little and can
dramatically improve a terrible situation.
Have a financial question? Send me an email and I’ll personally
respond, free of charge. Go to www.guardingyourwealth.com and click
on ‘Ask Jeff’.
In addition to being a nationally syndicated columnist and Certified
Financial Planning Practitioner, Mr. Voudrie provides personal,
private money management services to clients nationwide. |
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