Living in Disaster-Prone Areas: Is Emergency Fund or Insurance More Important?

Jakarta — Living in Indonesia means coexisting with various natural disaster risks, ranging from earthquakes and floods to landslides. Indonesia’s geographical location in the Pacific Ring of Fire makes these risks unavoidable and potentially creates significant economic losses for communities.

In this context, financial preparedness becomes an important factor in mitigating the impact of losses. Financial planner Rista Zwestika stated that families living in disaster-prone areas need to understand their priorities when preparing financial protection.

According to her, emergency funds should be prioritised over property insurance protection related to disaster risks. An emergency fund is money set aside to face urgent situations such as job loss, health problems, accidents, or house damage caused by disasters.

She explained that emergency funds have broader protection coverage, including living costs, relocation expenses, medical costs, and other emergency needs. In ideal planning, families are advised to have an emergency fund equivalent to 6 to 12 months of monthly expenses.

After these needs are met, protection can be supplemented with property insurance that includes natural disaster coverage extensions. However, Rista noted that certain conditions allow insurance to take precedence over emergency funds. One such situation is when a home is still under a mortgage scheme (KPR), as banks generally require insurance protection.

“Banks typically require insurance,” she said.

Under such circumstances, the strategy that can be applied is a hybrid approach by building an emergency fund gradually whilst having basic insurance protection.

“Build emergency funds gradually, whilst obtaining basic insurance,” Rista said.

She also revealed that a common mistake among people in disaster-prone areas is having neither emergency funds nor insurance protection. When disasters occur, this condition causes communities to panic due to lack of financial preparation.

Financial planner Mike Rini from Mitra Rencana Edukasi emphasised that emergency funds and property insurance with natural disaster coverage extensions have different functions. Emergency funds serve to anticipate income loss, whilst property insurance aims to anticipate asset damage.

“If you have your own emergency fund, you can use it anytime. Property insurance requires a claims process,” Mike said.