The Importance of Natural Disaster Insurance in Household Budget Planning

Natural disaster insurance, which extends protection from property to vehicle insurance, is important for Indonesian households to own. Nearly all regions of Indonesia fall within high-risk disaster zones, whether seismic or hydrological.

Melvin Mumpuni, a financial planner from Finansialku.com, stated that residents living in disaster-prone areas can prepare funds to cover risks such as minor renovations or utilise property and vehicle insurance. Households can also set aside specific funds separate from their existing emergency reserves.

For example, households can maintain a general emergency fund of six to twelve times monthly expenditure. “Plus for minor renovations, for instance 50 million rupiah,” he said.

Emergency funds are useful for covering expenses when disaster risks occur. Meanwhile, property insurance serves to protect buildings owned. “Property insurance protects your assets,” Melvin said.

Mike Rini, a financial planner at Mitra Rencana Edukasi, views insurance as merely one option for managing natural disaster risks to property. Having insurance means transferring risk by purchasing coverage from an insurance company. “That is called risk transfer,” she explained.

To obtain this type of insurance, households typically pay premiums of approximately 0.5 to 1 percent of the value of assets owned. However, beyond insurance, Mike noted that households with greater means could relocate away from disaster-prone areas.

Additionally, Mike explained that to reduce risk exposure, families could adopt earlier planning measures such as constructing earthquake-resistant homes. This strategy falls within risk reduction approaches.