Ideal Financial Strategy to Manage Disaster Risk: Emergency Funds vs Insurance

Jakarta — For communities living with the risk of natural disasters, maintaining emergency funds and disaster insurance has become essential.

However, residents also need to understand that there are different priority levels between accumulating emergency funds and obtaining property disaster insurance.

Financial planner Rista Zwestika stated that families should prioritise establishing emergency funds before obtaining insurance protection in relation to natural disaster risks.

Nevertheless, emergency funds offer broader coverage protection, ranging from living expenses and relocation costs to medical expenses and other emergency needs.

For this reason, she recommends that families living in disaster-prone areas follow an ideal order of priorities.

First, a family must have emergency funds equivalent to at least 6 to 12 months of monthly expenditure.

Only then can someone living in a natural disaster area obtain vehicle insurance.

After all these provisions are in place, a family can only then plan for long-term investments.

Rista explained that disaster insurance can also be prioritised, provided certain conditions are met, such as if the house is still under a mortgage.

Residents living in very high-risk zones can also prioritise disaster insurance.

Furthermore, disaster insurance can be obtained when the value of assets owned is significantly greater than savings.

Accordingly, Rista said, families can implement a hybrid strategy in managing disaster risk.

Rista revealed that there are common mistakes in financial planning among residents living in disaster-prone areas.

She said that residents in disaster-prone areas typically do not have emergency funds.

Not only that, residents often lack insurance protection as well.

“In disaster-prone areas, liquidity is more important than lifestyle,” she concluded.