Disaster insurance tips for homeowners, renters

by Center for Personal Finance editors

KANSAS CITY, Mo. (May 21)--Daily news reports of natural disasters--tornadoes, floods, hurricanes, earthquakes--still haven't provided the incentive to plan ahead: Nearly half of us aren't sufficiently prepared to deal with potential losses (National Association of Insurance Commissioners May 13).

Forty-eight percent of Americans admit to not having a checklist or inventory of their possessions, according to a national survey on disaster preparedness conducted by the National Association of Insurance Commissioners (NAIC). And even those who do have a checklist aren't going far enough: 58% have no receipts to back up their records, 44% say their inventory is not stored in a remote location, and 32% haven't taken photos of their possessions.

Another alarming survey finding: Only 43% of U.S. adults with homeowners or renter's insurance carried policies with replacement cost payout. If your policy insures your home for the actual cash value, that's the amount it would take to repair or replace damage to your home and its contents after depreciation. NAIC officials warn that purchasing an actual cash value policy puts you at risk of not being able to recover from a disaster, because of depreciation on assets.

Are you prepared for a natural disaster? NAIC offers these tips:

• Complete a home inventory checklist. Use a camera or video in each room, and include documentation. Put a copy in a safe deposit box, and give a copy to your insurance agent. And include sales receipts and/or canceled checks for certain items, as well as model and serial numbers if applicable. Go to knowyourstuff.org for tips and checklists.

• Go digital. Store digital photos in your e-mail or on a website that you can retrieve from a remote location.

• Purchase riders for special items. These may include jewelry, art, heirlooms, and antiques not typically covered by a basic homeowners or renters insurance policy.

• Consider replacement cost insurance. It probably costs more, but in case of a disaster, the difference between replacement cost and actual cash value policies could mean thousands of dollars in payout.

• Review your policy annually. Are you covered for floods, earthquakes, water line breaks, or sewer line breaks? Make sure you have the coverage you need for your location. For example, the U.S. Geological Survey concluded recently that California has more than a 99% chance of having a magnitude 6.7 or larger earthquake within the next 30 years (U.S. Department of the Interior April 14).

• Appraise your home periodically. Does your policy accurately reflect home improvements or renovations?

• Sign up for online banking. If your home and all its contents are destroyed and you're living in temporary quarters, you still can access your accounts 24/7 and pay bills electronically.

• Make a disaster-preparedness plan for your family. Go to ready.gov for frequently asked questions, checklists, and printable wallet cards for family members so they know who to call and where to meet in case of an emergency.

For more information, read "Disaster-Proof Your Important Papers" in Home & Family Finance Resource Center.

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