What can people learn from the California wildfires about preparing their finances for a disaster?

As homeowners in Southern California start returning to discover whether their houses have been destroyed by the wildfires, everyone can learn a lot about what to do to prepare for a disaster. Here's some advice from a CPA and an insurance agent in Southern California, whose clients are dealing with these issues now -- and have dealt with disaster during past wildfires.

What to do before a disaster:

• Make sure you have enough homeowners insurance. "What you're going to find -- and what we found after the last fires three years ago -- is that a lot of people are going to be under-insured," says Derek Ross, an independent insurance agent in Woodland Hills, Calif. A few high-end companies, like Chubb and Fireman's Fund, will pay to replace a house that is destroyed, regardless of the limits on the policy.

  But most insurers limit their coverage to 125% to 150% of the insured amount. The price of building materials has increased significantly over the past few years, leaving many people under-insured. You also need to let your insurer know if you've added an addition to your home or made any major home improvements. Otherwise, your coverage will fall way short of what you need. Go to AccuCoverage.com, an online service that lets you access the same replacement-cost estimates that insurers use (the service costs $7.95).

• Take an inventory of your home. "It's so easy to spend 15 minutes with a digital camera and take a picture of every single item in your home,” says Ross. "The smartest thing you can do is go crazy one night and just photograph everything." He keeps a copy of his inventory in his safe deposit box, another at his office, and he also e-mailed a copy to his sister in Florida – a smart move people learned after their offices, homes and banks were all destroyed by Hurricane Katrina.

  Also keep receipts for valuable items, and photograph any special architectural details in your house. The Insurance Information Institute's Knowyourstuff.org can help you organize everything.

  Having the information (in a file or on a disk) makes it much easier when you make a claim. "I believe it will get you paid more expeditiously," says Ross. It also makes life a lot less stressful when you can just give the disk to the adjuster rather than having to sit down and remember everything that you've lost.

• Build an emergency fund. Michael Eisenberg, a CPA and personal financial specialist in Los Angeles, used to recommend keeping three to six months of living expenses in an emergency fund, but he's upped his recommendation to six months to a year of living expenses. "If you have this sum of money that can tide you over for six months to a year, you can make better decisions." You can keep the money in an online bank, such as ING DIRECT, where it can earn the best interest.

  And he also recommends keeping some cash at your home, along with your important papers, in a box you can grab if you have to leave quickly. Several of his clients were evacuated and are living in hotels now, and having the extra cash can make a big difference.

What to do after a disaster:

• Call your insurance company or agent immediately, even if you haven't been allowed to see your house yet. Ross said that some insurers made arrangements with local hotels and gave their policyholders a place to stay right away. Keep receipts from your lodging, food and anything else you buy while living out of your home. Your insurance company will reimburse you, and some are already cutting checks to give people some money for additional living expenses. The Insurance Information Network of California has toll-free numbers and other information for people affected by the fires.

  "Contact your insurance broker and let him or her know that you're safe," says Ross. "Put the claim in, get the ball rolling and get the adjuster's name and contact information." Then he recommends taking detailed notes whenever talking with anyone -- the insurance company, agent, adjuster and any contractors.

• Let your employer know where you are so you won't miss a paycheck. You may even be able to get a pay advance to help cover emergency expenses, says Eisenberg. Also contact your lenders and let them know what happened. "Most lenders will be willing to work with somebody in a disaster like that," he says.

  Because you'll have extra expenses for a while -– such as clothing and restaurant meals while out of your house -- managing your cash flow becomes essential. Contact your CPA or financial adviser, who can help you make long-term financial decisions –- especially if your home has been destroyed. But don't worry about making too many long-term decisions right away, says Eisenberg. The American Red Cross, the American Institute of CPAs and the National Endowment for Financial Education has a helpful brochure Disaster Recovery: A Guide to Financial Issues.

For more information about dealing with disaster, see Insurance Lessons After Katrina. For more information about wildfires and tips for filing your claim, see the Insurance Information Institute Web site.

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