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Financial Prep for Natural Disasters

Make sure you have enough insurance to cover the full cost of rebuilding your home after a fire or other catastrophe.

Question: I live near the recent wildfires in California, and fortunately my house was safe. What can I do to protect myself financially if I’m not so lucky next time? - M.S., Woodland Hills, Calif.

Answer: Most important, make sure you have enough insurance to be able to rebuild your home—many people who lost houses in wildfires in recent years were underinsured. Derek Ross, an independent insurance agent whose Oak Park, Calif., house was within 50 yards of the November wildfires, has helped several clients whose homes were lost or damaged. He recommends getting an estimate on rebuilding costs from an insurer that has visited your home or from a builder that can tell you the cost per square foot of reconstruction in your area. Let them know about any high-end materials used in the house that will need to be replaced. Ross also suggests getting extended replacement cost coverage, which adds 25% to 50% to the coverage amount if the cost of labor and materials rises after a disaster (see Trim Your Home Insurance Premium).

Having a video inventory of your household before a disaster strikes—and photos of damages afterward—will speed up the claims process. Also find out about other coverage that can help. Insurers typically cover the cost to replace damaged landscaping, with limits up to $1,000 to $5,000. Some insurers even sent out trucks to spray fire retardant on high-end homes.

And if you must evacuate during a fire, keep receipts for the cost of staying in a hotel or rental, which insurers cover as “additional living expenses,” often for up to 12 months. You might be able to claim the casualty loss deduction for any uninsured losses on your tax return if your home is in a federally declared disaster area.

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