Disaster-proof your home and savings: Is fortifying your home against disasters a good investment? Image Credit: Shutterstock

Emergency preparedness experts recommend that you have a ‘go bag’ for disasters like a massive fire that breaks out in your building or a water pipe that bursts and causes large-scale water damage to your homes. (‘Go bags’ are nothing but kits with supplies to help you survive a few days if you have to evacuate your home or shelter in place.)

Similarly, preparing your finances for disasters is also smart. Having cash on hand, access to credit and the right insurance coverage can help you get through perilous times. Fortifying your home against disasters also can be a good investment.

Not everyone can make these preparations, of course. People with the fewest resources often suffer the brunt of disasters. But anything you can do to bolster your situation now could help you limit the toll.

Home insurance
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Stash some cash

Having cash on hand could help you pay for groceries, fuel, temporary accommodation and other necessities, in the remote chance your accounts or payment systems aren't functioning, which could worsen if the power goes out or cyberattacks knock city-wide systems offline.

You may need more than you think, especially if you're away from your home for more than a few days. Global consumer insurance advocates recommend keeping at least $2,000 (about Dh7,500) in a safe place somewhere in your home, preferably in your ‘go bag’.

After a widespread disaster, a wider global trend is that there is ‘incredible competition’ for rentals and other lodging, and a cash deposit could help you secure a place to stay, said US-based insurance consumer advocate Amy Bach.

The currency should be in addition to any emergency savings you have at the bank. Again, anything is better than nothing. While financial planners typically recommend an emergency fund equal to three to six months of expenses, even a lesser amount of cash in hand can help you cope.

Home insurance
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Get some credit

Your insurance may have high deductibles or other limitations on your coverage that require you to pay a lot out of your pocket.

Policies for certain types of disasters, for example, often have deductibles of 10 per cent or more of the insured value. Insurers also may limit how much they pay for upgrades needed to meet current building codes or for replacing older parts of an apartment, Bach added.

A line of credit on your home (link to YM story on this) can give you access to a relatively inexpensive source of money in an emergency. You'll need to set this up long before disaster strikes, since lenders won't let you borrow against a damaged home. Resist the urge to tap this credit for other purposes, so that the money is available when you need it.

An alternative if you're a renter or otherwise can't qualify for a line of credit on your home is to ask your bank for a personal line of credit. Credit cards can also help pay the bills if there's enough available credit.

Once you have $500 (about Dh2,000) or so set aside for emergencies, consider paying down your credit cards and aim to use no more than 30 per cent of your credit limits.

Using even less of your credit limits would be even better, because it frees up more space on your cards and also helps to build or maintain your credit scores.

Home insurance
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Try to cover the big risks

Check your home's susceptibility to various disasters at databases which supplies risk data to insurance companies. Each hazard your property might face is graded by global insurers.

The lower the grade, the more you should consider ways to mitigate the risk if you can, said Bob Frady, co-founder of HazardHub, a third-party provider of risk data for property insurance.

That could mean buying additional coverage. A typical homeowners or renters policy doesn't cover damage from disasters, for example, but such coverage can be purchased separately.

Review your policy to see what's covered and what's not. Make sure you have replacement coverage for your possessions rather than actual cash value coverage, which pays considerably less.

You'll also want at least 24 months of ‘loss-of-use’ coverage (explained below), which pays for your living expenses while your home is rebuilt, Bach explained. Widespread disasters can cause even longer rebuilding times.

What is ‘loss-of-use’ coverage for home insurance?
‘Loss-of-use’ coverage, also known as additional living expenses (ALE) insurance, can help pay for the additional costs you might incur for reasonable housing and living expenses if a covered event makes your house temporarily uninhabitable while it's being repaired or rebuilt.