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Are You Financially Prepared for a Natural Disaster?

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After Hurricane Katrina hit in 2005, I was surprised to learn that homeowner's insurance didn't cover much of the damage. I dug into the topic for a series on NPR and learned that the government's National Flood Insurance Program is subsidized by the government at an average cost of $600 a year.

It's not all that expensive, but is often overlooked by homeowners who believe that floods are covered under their homeowner's policy (false), or that it's not necessary because they live in a low-risk zone (proven wrong by Hurricane Sandy).

Seven years later, that research hit close to home, literally, when Hurricane Sandy ravaged New York. Suddenly many parts of Queens (my hometown) were devastated.

I spoke to families who lost everything; their homes were totally and terrifyingly submerged in water. Furniture was ruined. Floors swept into the sea. Mementos gone forever.

Of course, the worst damage was the impact on families. Parents cried about the effect it would have on their kids and grandkids. Grown children saw their parents in their 70s and 80s lose their homes. In one community in Brooklyn, parents and children who lost their beds have been sleeping on the cold floor.

These are not experiences that can be forgotten logistically or psychologically. The inability to protect our children from any type of trauma may be the strongest instinct we feel as human beings. How do we prepare?

Most of the people whom I've spoken with have explained that they didn't have flood insurance because they weren't in a high-risk "Special Flood Hazard Area" and assumed it wasn't really necessary.

With "100-year" storms occurring every few years, the expression "think globally, act locally," takes on new meaning. The frequent occurrence of these storms results in the fact that we have to pay more attention to how we are protecting our families.

The fact is, preparing for any type of impending catastrophe is tricky business. After all, doesn't everything pose at least some risk? (I can't help but think of Woody Allen and his fear of the countryside.)

Should you buy insurance for everything -- even that unnecessary extended warranty for your new smartphone? Answer here: no.

Here are some basics all families should do in case of an emergency.

Create an Emergency Fund

Every family should have money set aside should any emergency strike -- whether a storm, a layoff, or a busted laptop. Your goal is to save at least six months' worth of living expenses for necessities such as rent or mortgage payments, utility bills and groceries.

If you can put aside nine months' worth of expenses, even better. Stash this money in a bank or credit union that's FDIC-insured so that it's safe and you can access it whenever you need it. You're not out to make big returns; you want to keep this money safe.

Not sure how much you spend each month? Use my handy budget calculator to find out.

Have Some Spare Cash Lying Around

I'm normally the one nagging you to take your money out of your sock drawer and put it in the bank. That's still the case, but if there's a natural disaster and you can't leave your home or your bank loses power, guess who's not getting to the ATM so fast?

And if you wait until the last minute when everyone's trying to withdraw money, there have been times when the ATMs simply run out of cash, as happened post-Sandy.

On top of that, stores sans power couldn't run credit and debit cards, meaning folks had to pay with actual dollars (remember those?). I'm not suggesting you keep your life savings under your mattress! Just keep a reasonable amount (say, $200 or so) in a secret hiding spot, should you need it.

Review Your Insurance Policies

My two must-haves: health insurance (every member of your family needs it, no matter how young and healthy), and renters or home insurance (even if you live in a 500 sq. ft. apartment).

One to strongly consider: flood insurance, since flood damage isn't covered by a standard homeowner's insurance policy. It's low-cost ($600 a year on average, according to the National Flood Insurance Program) and could protect you from losing everything in a disaster.

To get a cost estimate and find insurance agencies that offer flood policies in your area, go to floodsmart.gov or call your homeowner's insurance company. If you live in an area prone to other kinds of natural disasters, such as earthquakes, look into other specialized insurance plans.

Even though many families affected by Sandy are still awaiting their FEMA funds, no one at this point thinks the fund will go belly up.

Some of the remaining 115,000 victims who filed claims will be helped by the $9.7 billion aid package that Congress approved in early January, and others will hopefully be rescued when Congress votes on a much larger aid package -- to the tune of $51 billion -- which is expected to pass next week.

Un-digitize Your Files

Got all your insurance policies, banking info, and emergency contacts organized online or on your smartphone?

That's great, but in a disaster, you may not be able to access the Internet or your computer or phone. Be sure to have a printout of all the important details in a secure place in your home, like a locked filing cabinet.

Beware of Charity Fraud

Sadly, natural disasters are often followed by charity fraud. As crowdfunding -- raising money through sites like Kickstarter.com -- becomes more popular, scammers are using those sites to pose as charities or victims in need.

I've been giving to New York Cares, which my friends who are active in the recovery tell me is a good place to donate.

To make sure your charity is legit, search for it on the Better Business Bureau's website to see if it earned the "BBB accredited charity" seal of approval, or look it up on Charity Navigator to find its overall rating (you want it to have at least three stars).

President's Council Is Trying to Help

I'm pleased to report that our president's Advisory Council on Financial Capability is working on ways to help Americans prepare for emergencies like Sandy.

The Council recently recommended that the president integrate an emergency financial and economic disaster preparedness response into the broader financial capability efforts of the federal government.

The goal: To make sure that underserved communities -- often the hardest-hit victims of emergencies -- are financially prepared when disaster strikes. More to come...

Is your family prepared for future storms? Share your tips here.

Beth Kobliner is a personal finance commentator and journalist, the author of the New York Times bestseller Get a Financial Life: Personal Finance in Your Twenties and Thirties, and a member of the President's Advisory Council on Financial Capability. Visit her at bethkobliner.com, follow her on Twitter, and like her on Facebook.

This post was originally published on Mint.com.

© 2013 Beth Kobliner, All Rights Reserved