Laura Rowley Money & Happiness

A tornado touched down in my brother's town this month. It didn't affect his home -- because most of it had already burned down over the Fourth of July holiday.

He and his family were away that weekend, and believe stray fireworks landed in the bushes next to the house. Thankfully, no one was injured. One of the firefighters, in the midst of battling the blaze, even had the presence of mind to grab an envelope labeled "graduation money" that my niece had taped to her bedroom wall. (Her high school graduation party was the previous weekend, and she hadn't made it to the bank yet.)

But everything else melted, and they have to recreate a list of their possessions mostly from memory.

Prepare for the Worst

With wildfires becoming more destructive in recent years, the 2008 tornado season one of the deadliest on record, and this year's Atlantic hurricane season forecast to be more active than usual, it's smart to ask "what if?" and protect yourself.

Preparing for disaster is one of those things -- like eating five servings of vegetables a day -- that people know they should do, but often don't. A recent study by the National Association of Insurance Commissioners (NAIC) found nearly half of Americans don't have enough insurance to deal with potential losses, and half have never taken an inventory of their possessions.

Focus on safety, a plan for communicating with family members, and accessing valuable documents in the event of disaster, suggests Tom Hazelwood, head of the disaster response program for the United Methodist Church for the U.S., Latin America and the Caribbean for last decade. He has provided assistance to victims of the Sept. 11, 2001, attacks, Hurricane Katrina, and California wildfires.

"Mostly the thing I see is the pure lack of planning -- people feel secure in their homes and think that it will never happen to them, and then it does," Hazelwood says. "Most people don't take the time to think through their vulnerabilities. Could your home get hit by a tornado or hurricane? Are you vulnerable to fire, flooding, or an earthquake? Every family should think through the possible events that could happen to them where they live."

Blown Away

Betsy Piette, a pastor in Parkersburg, Iowa, had contemplated those events, and it saved her life in May. She was trying to decide whether to attend a graduation party when tornado sirens went off. She climbed into the tub in a basement bathroom with a sleeping bag and pillows.

"I could hear the roar coming closer and closer -- and I started to hear things popping like transformers and trees," she says. "As it got overhead it was very loud, and I knew the house was going." The tornado took everything but the exterior walls, a wall of kitchen cupboards, a closet, and the bathroom where she rode out the storm.

Seven people died in the strongest tornado to hit Iowa in 30 years, and hundreds more lost everything they owned. "There were people with cash, savings bonds, and valuable coin collections in their homes," says Piette. "I heard someone say, ‘This [collection] was what I was going to retire on -- and it's gone.'"

Keep It Safe

Store originals of your most important documents in a safe deposit box, a basement safe that can withstand temperatures up to 1,700 degrees, or on a portable memory storage device. Hazelwood uses an external thumb drive that's password-protected, where he has recorded all of his financial account numbers and passwords, and stored scanned copies of his critical documents.

"I keep one thumb drive in my office, and one in my backpack. After a disaster you just have to find a computer anywhere that's working and you have all those documents with you," he says. "The recovery process is much faster for people who have those documents. If you don't, you're talking about months to get through that process."

Also make an inventory of your belongings, taking photographs of each room, and noting the model and serial numbers of the items. If possible, save receipts or canceled checks to prove the value of items in your inventory. (Remember to include seasonal items stored in the attic, basement, or garage, such as holiday decorations, tools, and sporting equipment.)

Store a copy of the data with a relative, in a safe deposit box, or online. Companies such as My Online Home Inventory allow you to upload the photos and descriptions in a secure file for an annual fee of $50. (The file should include a list of the 24-hour contact numbers for your insurer.)

Fully Covered

Meanwhile, make sure you have a replacement insurance that covers the real cost of replacing your home, rather than an "actual cash value," which covers your belongings after depreciation (i.e., if you have a 12-year-old television, you'll get an amount equal to the value of a 12-year-old television).

The NAIC survey found 43 percent of U.S. adults have replacement policies; 27 percent insured their homes for actual cash value; and 28 percent didn't know what type of policy they had.

Even if you do have replacement coverage, insurers have been narrowing the definition of "replacement," leaving some homeowners with inadequate coverage. To make sure you're covered, go to AccuCoverage, enter information about your home, and the site will provide the estimated cost of replacement. Compare this to the amount of coverage in Part A of your policy.

The California Experiment

In his book "High Wire: The Precarious Financial Lives of American Families," Peter Gosselin reports on California insurers who were low-balling quotes to get market share, with disastrous results.

"California is a natural laboratory, because we have wildfires that sweep in and take out a whole bunch of houses at once," Gosselin explains. "You can tell if it's a one-off thing or a pattern. When the Oakland Hills fires sweep in and wipe out all the houses in an area and you see that virtually everyone is underinsured, then you have a pretty good idea something is wrong."

Gosselin interviewed homeowners who had asked their insurance agents if their replacement coverage was too low only to be told the value was in the land, not in the house. "People who had gone to the trouble of making sure they were insured ended up with a huge hole in their finances that they didn't think was there," he says.

The Devil Is in the Details

In addition to proper replacement coverage, verify whether you need extra coverage for fires, earthquakes, or other special-situation losses, and check if your policy covers damage from flooding, wind, and hail (many don't).

Also consider a policy that covers your living expenses while your home is rebuilt. Finally, be sure to contact your insurance agent to update your policy if you do renovations or improvements.