If you had to run, what would you take with you? Watching all those California houses go up in flames last week was a frightening reminder of some important Savage Truths. First, nothing is as important as life -- yours, your family's, perhaps even your pets. That's what everyone grabbed as they ran -- along with precious family photos.
That's why it makes sense to have a discussion with your family about what you'd want to take -- and how you'd carry it -- if you had just moments to escape from fire, flood or earthquake. An escape plan, a reconnection plan, as well as a "what to take" plan are critical.
But the second truth is that if you're properly insured and take appropriate precautions to bolster your insurance claim, the process of recovering your assets will be less painful.
Here's what everyone should do now, in advance of disaster.
Check Your Insurance Coverage
Contact your homeowners insurance agent now. Though housing prices are falling, the cost of rebuilding after a fire or flood continues to rise. Make sure that you have enough
basic coverage on your home and its contents. (The land won't be destroyed, so it's not considered in valuing your home.)
Then make sure your coverage includes
. When you rebuild, you won't put in a 10-year old dishwasher or oven, and it will cost far more today to replace the couch you bought a decade ago. Similarly, if your home has expensive building materials such as a slate roof, you won't want your next home to have tar shingles.
The best policies offer a cushion of perhaps 20% on top of the stated value of rebuilding your house. Thus, if your home construction is listed as having a value of $500,000 but it costs $600,000 to rebuild with the same quality materials, you'll be covered for the overage. Best bet: Get a written estimate from an architect or builder, stating the current local cost per square foot for constructing a home similar to yours in quality and materials. Put that assessment in the files kept by your insurance agent to justify increasing your coverage.
The contents of your house are listed separately, and typically insured for 75% of the value of the home itself. But if you have expensive carpeting, wall covering, lighting or furniture, you'll want to document that, and increase the contents coverage. Then if you have expensive artwork, silverware, jewelry or furs, you'll want to "schedule" or separately insure them. That will require getting written appraisals, which might need to be updated every few years. Keep the original appraisals stored safely off-site, and leave a copy with your insurance agent in your file.
Keep Extensive Records & Documentation
Just having enough insurance, and the right kind of insurance, doesn't guarantee that you won't have a hassle. You need documentation of the cost of everything -- that includes purchase receipts, photos, appraisals, and perhaps even a videocam CD with a tour of the house, pointing out special features and upgrades.
Then store that information off-site in another safe place!
It might be worth paying for a safe deposit box in a bank to store these records. Or you might leave them locked up at your office, or at the home of an adult child in a different location.
Similarly, you'll want to store important financial records -- or copies -- in an offsite location. Major companies have followed this practice for years. Regularly back up your computer on CD, and take a copy to a different location. Your accountant should have a backup copy of your tax returns; your bank should be able to reconstruct your checking account. But anything you can back up online puts you ahead of the process.
Get Ready to Run
So if you had only a half hour and your car, what would you take with you? If you're organized and keep your financial records in a simple filing system, you can easily take the most important documents.
Best bet is to store your important information in a metal file box with a handle. Or just keep a file box at hand. If you at least have all the important stuff -- from passport to birth, marriage, divorce certificates, to investment statements, checkbook register or disc from your online money program, last year's tax return, life insurance policies and homeowners policies, as well as the copy of your will, in one room you can quickly load the file box up. And then you'll still have time to gather even more important stuff: family photos, silver and other items of irreplaceable sentimental value.
(For a good inventory, click
here, enter your email address into the pop-up box and you'll receive a link to my personal financial organizer, which you can print out, use as a checklist, and store with your "run box.")
We all hope that day will never come. But after the California fires, Hurricane Katrina and other disasters, it makes sense to be prepared. And that's The Savage Truth.
Terry Savage is an expert on personal finance and also appears as a commentator on national television on issues related to investing and the financial markets. Savage's personal finance column in the Chicago Sun-Times is nationally syndicated, and she released her fourth book,
The Savage Number: How Much Money Do You Need?
in June 2005. Savage was the first woman trader on the Chicago Board Options Exchange and is a registered investment adviser for stocks and futures. A Phi Beta Kappa graduate of the University of Michigan, Savage currently serves as a director of the Chicago Mercantile Exchange Corp. She also has served on the boards of McDonald's and Pennzoil.