Creating a Personal Disaster Plan

  The idea of a personal disaster plan began circulating in the days after the September 11, 2001 attacks. They got a boost after Hurricane Katrina. Yet even when we experience a fortunate break between natural and man-made crises, it’s still a good idea to have a plan and review it annually.

Why? Because there is no such thing as a one-size-fits all disaster plan, nor should it begin and end with details on how you and your family would cope in the aftermath of a weather disaster or an attack with worldwide implications. Disaster planning is all about worst-case scenarios that might affect you directly.

    Recently, for example, an Aequus client unexpectedly found herself in a situation so dire it potentially could have proven fatal. Out of the blue, the single woman was incapacitated by what she thought was a severe case of the flu or food poisoning. Her sudden illness left her so weak that she was unable to descend the stairs of her home, and was forced to call an ambulance.

    The woman was too sick to find her keys and secure her house before being transported to the hospital, so the following morning she contacted Aequus. An Aequus team member was sent to her home to retrieve her keys, lock up her house, and take her keys and purse to her at the hospital. In the aftermath of her recovery, the woman has decided to set up a meeting with five other single women in her neighborhood to talk about creating an informal group whose members could call on each other in case of an emergency.

    How would you have handled the situation described above? Do you or your spouse or partner travel extensively on the job? How prepared would you be if death, illness or unforeseen events kept you from coming home? Is there a child, friend or other close relative who would have special care interrupted if something were to happen to you? What about I.D. theft? Do you have a plan? These are only a few of potentially dozens of scenarios that you might devise to address your own personal situation.

    A qualified financial planner is a good source of feedback and can suggest ways to organize the various aspects of the plan. He or she can also advise you on ways to structure the report so it can be read and understood by others. Here are some other steps to get you started:

Develop a “what if” list. Don’t rule anything out and bring your most trusted family members, friends and colleagues in on this discussion, even to the meeting with your planner or other financial experts. Consider possible events that could hurt you, your family, your home or your business – what hurts one automatically hurts the rest. The first question – what if you died or became disabled tomorrow?

    Could your family and business continue to function while they worked through the aftermath? A good way to make the list is to draw a line down the middle and on the left side list every possible risk, while writing every possible remedy for those risks on the right side. 

Check your insurance at home and work. Your “what if” list might help you focus this, but all home- and business-based coverage should be double-checked with your agent once a year or when major changes occur in your life, such as marriages, divorces, new kids, business expansion, or contraction. If you work for an employer, check with their human resources department on the right person your health power of attorney or advance directive designee would call if there were any question about your benefits if you died or were incapacitated.

    Make sure your coverage is adequate based on any of the emergency scenarios you’ve developed. If you had a huge medical bill, could you pay your deductible and any uncovered costs out of your own reserve funds? How’s your life insurance for you and your spouse? Is your home insurance based on the highest replacement value figures for your neighborhood? While you’re at it, see if your insurance will cover temporary relocation and car replacement if you need it.

Make sure your reserve fund is healthy. In any emergency, cash is king. If your family or colleagues had to pay the mortgage or rent, make payroll, buy groceries, temporarily relocate, pay your out-of-pocket costs for healthcare services, and even pay for your funeral, would they be able to access cash to do it? This goes beyond the creation of a typical emergency fund that pays three to six months of expenses if you lose a job; think bigger to make sure there’s more than enough in savings to cover the cash needs your worst-case scenarios reveal. If you have designated a financial power of attorney, they need to be aware of these assets and have access to them.

Create physical contingency plans. If your family was in different places when a natural or man-made disaster occurred, do you all know where you’d meet?  If you had to relocate to a particular relative’s home, does that relative know you’d be knocking on his or her door? Close the loop with all friends, family and service providers you’d need for support if you had to rely on them – and set up an effective communications plan to go into effect the moment trouble happens.

Plan an escape kit. If you had to leave home within a very short period of time, what would you take? Key financial and insurance documents would be a must, so make sure that material is organized and in one place for speedy packing. Also, it might make sense for all family members to make a list of things they’d pack in a hurry as well – put a time on your calendar each year for everyone to update their list.

    If you have financial or work data on computers, it’s important to regularly back up that data on separate drives that could be packed up and downloaded to a portable laptop offsite. Also, don’t forget to plan for your pets if you have them – they’ll need their supply of food, toys and medication if necessary. Consider the above contingencies, and those of your own, in creating a truly effective disaster plan that will protect you and/or your family.

October 2010 — This column is produced by the Financial Planning Association, the membership organization for the financial planning community, and is provided by Aequus, a local member of FPA.