Color of Money Live: Disaster Preparations

Columnist Michelle Singletary hosted financial planner Arthur Stein, who answered questions on disaster preparations. In today's column , Michelle writes that the families that have been displaced by Hurricane Katrina will soon face a new challenge -- acquiring pay stubs, insurance papers, bank statements and any of the other financial records that are the bane of our modern-day existence.

A transcript follows .

Read Michelle's latest columns , check out her Color of Money Book Club selection archive or sign up for her weekly e-mail newsletter.

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Washington, DC: In a previous chat on insurance claims following Katrina, the host said that you should have enough insurance not only to rebuild your home but enough insurance in case you are sued. How do you determine how much insurance is enough to protect your home if you're sued?

washingtonpost.com: Transcript: Hurricane Katrina: Insurance Claims (Sept. 6, 2005)

Arthur Stein: Hard to tell how much you might need, but purchasing the insurance is cheap.

We are talking about Umbrella Liability insurance. This pays if you lose a lawsuit for more than the liablity coverage in your home and auto insurance. The Umbrella policy starts paying once your underlying coverage is exhauted.

Umbrella coverage is offered in multiples of $1 million. Cost is typically $100 to $200 per year for each million in coverage.

I recommend a minimum of $1 million.

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Fairfax, Va.: How are my financial records (bank account, checking account, saving account) protected in a tragedy like New Orleans. Where are the backup records stored. How do the people of New Orleans get access to the bank account and money. How does one pay bills and creditors in NO?

Arthur Stein: Hopefully, your bank, investment company, credit card company, etc. will have backups.

However, the best situation is if you have backups somewhere safe. Specifically, copies of wills, power of attorney, health care power of attorney, living will, burial instructions and trust documents should be kept not only at home, but also in a safe deposit box and with an attorney and/or anyone named as able to act on your behalf.

Someone should also have the instructions about the location of the safe deposit box.

Other financial documents that need to be copied so that copies can be sent to attorney relative or friend or placed in safe deposit box include deeds to home, titles to cars, receipts and photos of property, other legal documents.

Finally, everyone should make lists of insurance policies, investments, property, trusts, personal property, prescription drugs, names of doctors, employee benefits, bank

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Rockville, MD: Hi Michelle. Thanks for doing these chats. My husband, young son, and I live in an apartment (on the first floor). I mention this because though its a decent complex, I feel it's not as secure as a house. I have renters insurance and I have a safety deposit box at the bank. In your column you mentioned keeping important documents in a fireproof box at home. I have all my documents at the bank, and copies of documents like my passport and insurance policies at home. My dad says that's unnecessary. I guess I'm thinking a break-in is more likely than a natural disaster. Please advise. thank you

Arthur Stein: A safe deposit box is probably safer than at home. However, it is easier to keep some documents at home for easy access. Other documents, like tax documents are too voluminous to keep in a safe deposit box. That is when home storage is the only choice.

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Woodbridge, VA: I am more confident that we need to be debt free (after last week's events). I can't imagine the stress of loosing everything and still being responsible for outstanding debt. You have talked about paying of "bad" debt before, but do you have any suggestions with regards to insurance products or personal goals in light of what happened in the gulf coast? Thanks.

Arthur Stein: The most important way to prepare for a disaster is to have the appropriate amount of life, disability, long-term care, auto and homeowners insurance. These products protect you from disasters. Not just hurricanes and floods, but also accidents, injuries and ill-nesses.

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Michelle Singletary: Hey everyone. Well as you can see my guest was just jumping to start. Good for him especially since there are a boatload of questions. Thanks for joining in today and let's continue.

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Washington, DC: Hi Michelle,

My mother was telling me a story a Japanese friend of hers told her. In Japan, where they live with the possibility of earthquakes and volcano eruptions, her friend says each member of the family has a suitcase under their bed, with a change of clothes, prescriptions and/or prescription info, etc. (I'm sure it varies based on situation). Also included is financial information of course, bank account numbers, and what have you. I suppose in a situation where one does not have access to their files, a computer, etc. this would come in very handy. So, in case something happens, everyone grabs their bag and goes. What do you think about this? I know where all my financial paperwork is, but in case of an emergency I sure would be running up and down stairs and in and out of closets looking for things!

Arthur Stein: That's a great idea. Maybe a backpack instead of a suitcase.

Then you could also use the backpack for some food, water bottles, etc.

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Petoskey, Michigan: Hi Michelle and Arthur. We already have a fire safe for important documents. However, with Katrina's impact I've been thinking about making copies or scanning documents to cd and storing them in a deposit box at a bank. Is this a good idea? Would copies be useful if the originals are lost? What are some other similar steps that you suggest?

Thanks

Arthur Stein: Yes, an excellent idea.

I like to scan documents. Then I can copy them to my wife's computer, my computer at the office and a CD. The CDs can be placed in safe deposit box, mailed to friends, filed with a lawyer or accountant, etc.

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Alex, VA: It is sad that it takes a tragedy to prompt you to do sometimes necessary things. A couple of months ago, a friend died in a car accident. He was single and lived alone. His parents called me (!) to see if I knew where his bank account was. (uh, no). I am also single and live alone and often tease people that I am going to leave them in the will (or cut them out). I recognized that I had to do something. So I bought a "shadow box" - like an 8x10 picture frame, but about 2 inches deep. I have a copy of everything in there. One bank statement, one 401(k) statement, one mutual fund statement, credit card statement, car title, insurance, etc. And just to lighten the mood, I put a label on it that says "In case of tragedy, open the back. In case of tragedy and high stress, just break glass." It is now hanging on the wall in my TV room. I may update it once a year or so, or definitely when anything changes. Just an idea.

Arthur Stein: The shadow box is an interesting idea but I still prefer a fireproof container that can be easily taken with you.

And don't forget to regularly update the information. Once a year is a good schedule.

Michelle Singletary: And don't be so hard on yourself or others who haven't gotten their important papers together. But you still make an very good point. We all -- single, married, divorce, desperate (just kidding) -- need to assemble important papers and put them in a safe place and let somebody know about it.

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Reston, VA: Thanks for having this discussion. I have a question about savings in case of a disaster. Are local banks with limited branches more vulnerable than big national banks? I ask because I have a local bank and if there is a flood does it make a difference on how I can access money?

Oh and how much in savings should one have in case of disaster?

Michelle Singletary: This is such a great question. And I'm not sure I know the answer. So you should contact your bank and find out. But you make a good point that if you bank at an institution with limited branches and that bank is shut down because of a disaster needs to have a system in place to help customers get to their money. But with online banking and telephone banking I'm sure even smaller institutions can handle such things in a crisis.

And the question is how much CASH should you have on hand. I remember in Maryland and DC many ATM networks were knocked out because we lost power for a couple of days and folks couldn't get cash to even to to the grocery store. So I would recommend having enough cash to buy gas and food for a couple of days. Although with the gas prices going up so much that might mean having a mint in your house :)

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Alexandria, VA: Hi Michelle,

I love your column and your chats and appreciate all the great advice. I purchased my first home last March and have recently started receiving several offers for mortgage insurance. Is this something every homeowner needs? I have life insurance, disability insurance and the normal insurance on my home.

Thanks!

Arthur Stein: Are you sure you do not have mortgage insurance already? Usually, the lenders require it as part of the mortgage.

Michelle Singletary: Or what you might be getting are offers for insurance to cover your mortgage payments should something happen to you. If that's the case forgetaboutit. It seems you've covered the basis. If you have regular insurance (term) and disability insurance you don't need this type of insurance, especially because it is so limited in that instead of cash your mortgage is paid. But what if you want to do something else with the cash -- like pay other bills.

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Annandale, VA: I know this is sort of a morbid question, but I believe it is relevant to this discussion. When storing all of your important documents (in a safe deposit or fire box) do you think it is important to supply (and clearly label) samples of each family members DNA in case...uh.. it is needed after a disaster?

Michelle Singletary: That's an interesting question. I just heard a news report that suggest parents should swab the inside of the mouths of their kids and store that Q-tip in the freezer in case they get separated from their small children.

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Columbia, MD: What personal documentation should you include in your must have 'get away' bag. I am assuming a 'get away' bag would be pre-assembled(pre-emergency)and separate from your normal record filing system. Would duplicates or copies of the documents be accepted in most cases?

Thanks!

Charleen

Arthur Stein: Unfortunately, you need to take a lot with you if you have not already sent copies to someone else. Relevant documents include:

ä©rth, death, marriage certificates;

ä)vorce decrees with all relevant settlement information;

çélls, trusts and any power of attorney information;

ädvanced healthcare directives;

ädoption papers;

äåy identification numbers, including drivers' license, passport and employee identification data;

å¥cent bank and brokerage statements;

å¥cent medical records that may be good to have on hand if incapacitated;

äïpies of residential deeds and mortgage data;

äár title, lease, loan information and license plate data;

äll insurance policies (health, long-term care, auto, homeowners, disability and life) and agent contact information;

åèere safe-deposit, lockbox and filing cabinet keys are;

åïme recent pay stubs;

ç!x returns for the last three years;

äll relevant contact numbers for executors, financial advisers, trustees, guardians, attorneys and any other pertinent individuals;

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Ann Arbor, MI: Michelle,

This may be a Hax problem, but here goes:

My hubby and I met and married in grad school. Thru fellowships, jobs and major scrimping, we managed to get through without debt. Yeah! We both now have good jobs and earn good salaries. The problem is that I would like to start spending our salaries whereas my husband wants to hold us to our grad school spending limits (actual $$s, not %). He said that if we were happy living that way, why change? I am not talking about going overboard by any means. But we max out our 401ks, have 8 months living expenses in cash, have already started a 529 tho I'm not pregnant, etc. I would like to take some of the left over money and spend it on things to make our life a little nicer. I'm even open to what he thinks would make life nicer - it doesn't have to be the couch I want (we have folding chairs now), it could be anything. But I'm sick of living like a grad student still!

Can you help? If it were some goal we were saving towards, like a house, I could live with it. But he sees a house as waaaay outside our 'budget' but in the meantime is stashing tons of money away in mutual funds because 'you never know'. How can I convince him to loosen up, just a little? Yesterday, I bought my first article of clothing not on sale since we've been married and he said that was fine, we just couldn't go out to eat that week (Applebee's). Please help!!!

PS - if I am wrong and he is right, please tell me that too...

Michelle Singletary: Oh, baby you are oh so right. But I'll be honest I'm like your husband. My husband bless his heart has to move heaven and earth to get me to spend on ANYTHING. If we forget and have to pay a late fee on a rental movie I have a FIT.

So I understand the fear your husband might be having. But he HAS to understand that spending the money the two of you make on some fun things is important too. Try again to have a sit down with him and tell him exactly what you just wrote. Do it at a time when you are both calm and there isn't somethng else going on. Perhaps you can recommend that you each get an allowance to spend on what you want with no questions asked.

The thing with this issue is you have to communicate and keep talking until you are heard.

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Silver Spring, MD: Should I liquidate into cash some Real Estate holdings to have money for a disaster such as Katrina? I'm not worried about being wiped out b/c I'm insured, but having cash for basic needs until insurance coverages are applied to my losses.

Thanks

Arthur Stein: Everyone should have an emergency fund of 3-6 months living expenses. If you are in a disaster prone area like New Orleans, you might want an even larger fund.

Another issue is how you insure access to your money during a disaster. You might want to keep some cash around and then rely on credit cards.

Of course, in an extreme situation like New Orleans after Katrina, cash might be the only acceptable payment.

Personally I am not prepared for a "Katrina" level of disaster. I do not want to keep large amounts of cash around the house. I rely on credit cards and whatever cash I could get out of an AMT machine on short notice.

We all have to make difficult decisions about how prepared we want to be for something that might never happen

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Bowie: Michelle, you said after one recent storm, people couldn't get cash to buy gas and groceries. I never use cash for those, anyway. Were debit-card operations not working?

Michelle Singletary: During that storm all electronic systems were down so stores were only accepting cash. I think we have to hunt in the house for pennies and such because like you my husband and I don't keep a lot of cash on hand. It just made us realize how dependent we are on electricty and when it went down we couldn't get some things.

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Baltimore, MD: Dear Michelle --

I know this is off-topic, and pales in comparison to what people on the Gulf Coast are dealing with, but I'm hoping you can help nevertheless. I've had an 800+ credit score for a decade -- only two credit cards, low ratios, paid in full every month, no other debt except mortgage, etc. Now in the past 4-5 months, I've just completely forgotten to pay two MasterCard bills -- realized it a week later each time. The stupid thing is, they're teeny -- it's the card I use for on-line purchases, and I just plum forgot I had bought $30 worth of books from Amazon.com that month (whereas my $1,000 bill on my other card has NEVER been late). I'm so frustrated with myself (to cut myself some slack, I'm very pregnant and overwhelmed with other stuff -- but still, I worked so hard for my good score, and to just FORGET. . . .). So I'm wondering how much damage I've done to my credit score, since I know late payment is about the worst thing you can do. Any ideas? The real problem is we're just in the process of getting financing for a kitchen remodel, so the timing couldn't be worse. Sigh.

Michelle Singletary: Dear Mom-to-be,

CHILL girl. If you have a credit scores of 800 plus a few late payments won't take you down to a territory that will seriously cause you to get rejected for the best rates.

It's true that late payments can ding your credit score but as soon as you begin paying on time again you help push your score right back up.

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Dupont Circle, DC: Hi Michelle,

My partner and I just got a budget and savings plan together using many of your recommendations. It was an empowering process! In the past you have recommended that people read a magazine about money issues. Can you recommend one for us? We both are basically novices at this--is there one that would be more appropriate than others? Thanks!

Michelle Singletary: I like Money Magazine, Kiplinger and Black Enterprise. All three are my bathroom reading material.

I also don't buy anything major without consulting Consumer Reports!

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Columbia, MD: Not a question, but a comment regarding safe storage of records- much of what has been written here today and within Michelle's latest column speak to transporting paper records. People have also mentioned storing scanned files on CD's- CD's are not safe within bank safe deposit boxes. There are not many banks that maintain temperature and humidity control for their safe deposit boxes.

With the low cost of high megabyte mobile storage devices like jumpdrives and compact flash cards, people would be well advised to make master and backup copies of records on these devices. One could also mail a compact flash device to someone in a different part of the country for additional backup/safety

Michelle Singletary: Good tip. My husband recently turned me onto flash drives. Love it! Easy to carry and you can send it to a relative (prehaps one not so computer savvy) and they won't peak at your information.

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Washington, DC: Good afternoon Michelle,

My finance and I are moving to a less expensive apartment. We're going to the put the rent difference into a separate account for a future downpayment on a house. We probably won't we looking to buy a house for about 3-5 years. What kind of account to you recommend we keep this in? It seems kind of silly to just keep it in a regular low-interest savings account.

Michelle Singletary: Honestly, I think you should keep your money (and bodies) separate until you get MARRIED. I would not advise you mix your monies together before that. Or buy a house or live together....

If you want to save separately to buy a home AFTER you get married put it in something very safe (because of the short time span) savings account, money market account etc. You might consider doing a CD laddering as well. That's when you buy various years of CDS so you can take advantage of the higher savings rate for the longer term CDs but not lock ALL your money in say a 5-year CD (especially when rates are rising).

But you want to keep this money safe even if does seem silly because you don't have time to invest it and weather the ups and downs of the stock market.

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Gales Ferry, Conn.: Mr. Stein, I'm not sure what area you're talking about, but up here Umbrella Insurance for $1M starts around $300+/year. Just FYI...

Arthur Stein: Thanks for letting me know.

The quotes that I have seen in this area are for much less. I recently had an 81 year old client purchase $1 million of coverage for slightly less than $200. My wife and I have $5 million in Umbrella Liability for $500 per year.

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Rockville, MD: My girlfriend and I are trying to ensure we do not miss any steps regarding our mortgage in the event of a death. (Do NOT preach at me about marriage--as we are not Canadian citizens we cannot marry!) Do you have a general checklist available online?

Michelle Singletary: Hey come on this chat and I will preach. It's what I do best. But are you asking about paying a mortgage if you both die? Why would you worry about that? You will be dead.

At any rate if you're asking if only one of you passed away, in the event of a disaster on the order of Katrina many lenders aren't so tough and will give you some time to catch up. And if you pay your morgage electronically and set it up to do it every month if you are in an accident or injured the bill is paid automatically.

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Coastal North Carolina: You mentioned keeping valuable papers in a safety-deposit box. Are most of those safe from flood damage?

Arthur Stein: Not necessarily. In a Katrina type situation, it is vital to have copies of important papers in another city. They do not have to be in a bank in that other city. They could be with a relative, friend, lawyer, etc.

That way you don't have to worry about your house and your bank safe deposit box both being flooded.

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Las Vegas, Nevada : Is it a good idea to have important papers in a safe at a bank in an entirely different location than your home, like another state?

Arthur Stein: In a Katrina type situation, it is vital to have copies of important papers in another city. They do not have to be in a bank in that other city. They could be with a relative, friend, lawyer, etc.

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Washington, DC: How is it possible for entry-level workers and minimum wage workers to save enough money to get us through a disaster like New Orleans? We barely make enough to buy groceries as it is.

Michelle Singletary: Sadly, you are so right. It is hard and this is they have to rely on strangers, state governments, the federal government and nonprofits.

So I hope all of you who can give, have done so already. My husband and I have and will continue to do so.

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washingtonpost.com: Rebuilding, Without Financial Records (The Washington Post, September 2, 2005)

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McLean, VA: Thank you for having this chat. I have a safe deposit box in my home (from when my bank closed), but I'm still concerned that in an emergency I might just leave this and everything else behind. If I had copies in another location, would these work for me to get my life back in order?

Arthur Stein: I agree that you are better off if you have copies in another location. For a disaster on the scale of Katrina, it would be hard to justify taking paper copies when you need all the food, water and medicine that you can carry.

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Fairfax, VA: For the folks who were going to hit an ATM before a disaster for cash, may I make a suggestion? ATMs usually only give out $20s. From now until $50 or $100, put a jar on your dresser. At the end of the day, put some of your loose change or dollar bills in it. (My aim is about $10 in change, the rest in $1s or $5s.) Some businesses want bills smaller than $20s now, can you imagine what it will be like after a disaster? If there's an emergency, grab the jar and go. I'm thinking that the businesses in LA and MS are begging folks to pay in bills smaller than $20s.

Arthur Stein: Excellent idea.

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City of Fairfax: Just a note about insurance and having money on hand. My single brother died unexpectedly recently. He owned a small triplex that he was in the process of renovating, ergo, no rent. He died w/o a will. My mother, who will inherit everything, has to carry the mortgage until she can sell the building. His insurance won't pay out until they get a death certificate with the cause of death. She can't get into his savings accounts until the court gets letters of Administration for her. (Gruesome detail: His body was not discovered until at least 10 days had passed. It will take the lab 3 months for the final report, so a death certificate with cause won't be issued until that time.)

Michelle Singletary: First, I'm so sorry for your loss. But your story and what you're mother is going thu will hopefully inspire others to get a Will. So many single folks don't think it's necessary but it is. Taking this step can really help your family during such a tough time.

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Annandale, VA: Hi Michelle,

Have you received you free credit report yet from annualcreditreport.com? My wife and I got ours and it was very easy. We chose to only get 1 report from each agency every four months as this will enable us to keep an eye on our credit throughout the year. Would you recommend this practice?

Also, a word of caution: I disputed two closed credit cards accounts that were still on my report after 8 years, even though they showed no adverse information. They were taken off my report the very next day (I told you it was easy). However, I noticed this lowered my credit score a little (18 pts). They pointed out that opening more accounts would help improve my score. My advice? Do not close eligible accounts that appear on your report if they do show any adverse info.

Michelle Singletary: Thanks for this note. And I've written in the past and recently that closing old accounts can lower your credit score. If you're on the margin of a good score that can really impact what you pay for credit.

Good advice.

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Rockville, MD: We are BOTH WOMEN, so save your preaching for the heterosexuals!

IF I DIE I DO NOT WANT TO LEAVE MY BELOVED HIGH AND DRY.

With THAT information, what do we need to think about above and beyond life insurance policies?

Arthur Stein: You need wills, powers of attorney, health care powers of attorney and living wills.

You might also consider joint accounts and revocable trusts. The advantage of joint accounts and revocable trusts is that they transfer property upon death without having to go through probate.

Michelle Singletary: And no need to YELL at me. But you are doing the right thing in trying to set up your estate to take care of a loved one in the event of a disaster or death.

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VA: Should I buy life insurance through my work or through my insurance agent?

Arthur Stein: You should compare the price of the policy offered through your work to what you can buy privately. In some cases it will be cheaper to buy through an agent, in other cases it will not.

Another issue is the amount and type of life insurance that is offered through your employer. Frequently, employer programs have death benefit limits that are too low. Also, they may not offer the type of life insurance that is best for you.

The best strategy is to consult with a financial planner. The financial planner can help you determine what you need and then help you find the most cost efficient way to buy it.

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Laurel: Mr. Stein, yesterday Robert Samuelson's op-ed was about the failure to prepare socially and economically for worst-case scenarios, because we don't have any paradigms about what changes would be necessary or how they would play out.

In the area of personal finance, it seems to me that certain investments like stock prices are also based on assumptions of normality. A big company probably has less than .1% chance of going bankrupt this year -- but it's not zero. Stock options seems to be priced under the assumption of what the distribution of possible prices will be, assuming things stay normal.

Do you ever recommend clients use stock options as protection against very big losses that have a very small chance of occurring?

washingtonpost.com: Robert Samuelson: Why We Ignore the Risks (Sept. 7, 2005)

Arthur Stein: Stock options expire in less than a year, so they are not a good form of long-term protection.

A diversified portfiolio of sotckes, bonds and cash (savings, money market) accoutns is the best protection. Mutual funds are a great way to dviersify your stock and bond investmetns.

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Laurel, Md.: Preach onnnnnnnn!!!!!!!!!!!!! Sis. Singletary

FBCG member!!!!!!!!!!!!!!

Michelle Singletary: So I shall. Thanks.

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Credit card use:: Your column on Sunday about use of credit cards for gas purchases got me thinking. Do you know what percent of the population charges things like gas, food, utilities, etc and maintains a balance owed each month?

washingtonpost.com: Sunday's Column: At These Prices, Drive Less

Michelle Singletary: The answer depends on whose taking the survey. The lending institutions like to say that not many folks carry a balance every month. The consumer groups who survey consumers find about 40 percent do. When I talk to credit counseling agencies their experiences suggest a much higher number of people carrying credit card balances equal to 50 percent of their gross yearly pay. Whatever number it is, it's too high.

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Denver: What is the best way to prepare for a disaster financially?

Arthur Stein: The most important way to prepare for a disaster is to have the appropriate amount of life, disability, long-term care, auto and homeowners insurance. These products protect you from disasters. Not just hurricanes and floods, but also accidents, injuries and illnesses.

You also need an emergency fund of 3-9 months of living expenses, cash and copies of your important documents.

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Michelle Singletary: Well that's it for today folks. Thanks so much to all who joined the discussion.

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