Protecting your assets — what to do if disaster strikes
Yonkers, NY – With natural disasters like hurricanes, earthquakes and tornados in the news so often, and the economy still struggling to stabilize, consumers are rightly concerned these days about their financial future should serious trouble strike.
“You can count on the government and sometimes your employer to help, but most of the burden of safeguarding your finances still falls on your shoulders,” said Noreen Perrotta, Editor, Consumer Reports Money Adviser.
The experts at Consumer Reports Money Adviser provide the following checklist to help you fill any holes in your financial safety net.
Homeowners know that Mother Nature can destroy their dwellings in a heartbeat, but many fail to realize they can put their homes at risk by taking on too much housing debt.
- Buy the right amount of homeowners insurance. You need replacement-cost coverage—enough to rebuild your home at current costs. For a quick estimate, multiply the total square feet by local building costs per square foot. You can get that number from real-estate agents, builders’ associations, or insurance agents. You might have trouble getting this type of coverage if you own an older home with architectural details that would be costly to replicate.
- Borrow prudently. You can probably find a mortgage lender who will let you spend 28 percent or even more of your pretax pay on housing, but don’t do it. Mortgage payments shouldn’t consume more than 15 to 20 percent of your gross income. You should plan to have your mortgage paid off by the time you retire.
You might need:
- Flood insurance. The standard homeowners policy doesn’t include it, but mortgage lenders generally require homeowners who live in areas at high risk for flooding to have a separate policy. This coverage is available through the National Flood Insurance Program, www.floodsmart.gov.
Your earning power
Fortunately, most workers can rely on government programs and their employers to help them and their dependents to some extent if they become disabled or die prematurely.
If you are disabled you may be eligible for:
- Social Security disability insurance: This coverage only pays if you’re unable to do any type of work because you have a medical condition that is expected to last at least one year or result in death. You must have worked long enough—and recently enough to qualify for disability benefits. They depend on your salary and the number of years you’ve worked, and they rise with inflation. To find out how much you would collect, visit www.ssa.gov/estimator/
- State workers’ compensation benefits: You’ll collect only if a work-related illness or injury caused your disability.
Additional safeguards to take:
- Buy an individual policy for long-term disability insurance. This advice applies primarily to high-earning, self-employed people. Individual policies are expensive. You’ll probably have to pay five to 10 times the cost of a group policy, which averaged $238.00 per year in 2009.
Your emergency fund should consist of six to 12 months of living expenses held in a liquid account. Those funds are your lifeline, so you shouldn’t take risks with them.
You can count on:
- Coverage by the Federal Deposit Insurance Corporation. Within limits, your deposits are safe if an FDIC-insured bank or savings and loan fails for any reason. The basic coverage is $250,000 per depositor at each insured bank and for each account ownership category, such as single accounts and certain retirement accounts.
Additional safeguards to take:
- Do business with healthy financial institutions. Even though your funds are protected as long as they fall within the coverage limits, you probably still want to avoid doing business with a shaky financial institution. If it fails, your money will usually be transferred to another bank, and it might not be to your liking. So before you open an account, check Bankrate.com’s “Safe and Sound” ratings, which gauge the relative financial strength and stability of U.S. commercial banks, savings institutions, and credit unions.
About Consumer Reports Money Adviser
Consumer Reports Money Adviser is a monthly, subscription-only newsletter that answers tough money questions and provides expert financial advice. Its proven information and successful strategies can make any financial decision an easy one. Each month, CRMA provides feature articles and helpful investment, savings, and spending advice that will help prepare consumers for anything life may bring them. For more information visit: www.ConsumerReports.org.