(MONEY Magazine) – Vivid and terrifying images linger long after disasters like Hurricane Hugo or the California earthquake: roofless homes, burning buildings, grim tallies of injured and dead. Yet if you're like most people, you think such images could never include you. Or -- if they ever did -- that there is nothing you can do to prepare for it. Wrong on both counts. No matter where you live, complacency and fatalism can prove lethal to your finances. Consider that: --At least 34 major catastrophes -- floods, earthquakes, hailstorms and the like -- caused $7 billion in damage last year, killed more than 200 people and injured at least 4,500. --Earthquakes are a threat to much of the U.S., not only California. --Floods occur somewhere in the country about every three days. --Tornadoes can strike anywhere; in 1989 there were 790 of them. Don't get scared -- get ready. Here's how four disaster-stricken families are recovering -- and how you can protect your family before and after a calamity. On page 68, senior writer Joanna Krotz chronicles the emotional toll of a disaster that befell her family. And our poll (page 75) finds MONEY readers well insured but sometimes confused about their coverage.

IN THE HURRICANE'S WAKE NEGOTIATING A SETTLEMENT FAIR TO ALL

My wife, the boys and I were all on the den floor trying to stay safe under a mattress, when we heard a huge crash,'' says Harry Gatch, 43, recalling the early hours of Sept. 22 at his home in Summerville, S.C. ''I turned on a flashlight, and we saw pieces of insulation flying around. Then we smelled pine, and water poured in.'' The scent came from a 150-foot pine tree that had been snapped at its base by Hurricane Hugo's 135-mile-an-hour winds. The tree had sliced through the roof to the second-floor bedroom where the couple's sons Gil, 8, and Lance, 5, normally slept. ''We were frozen with fear,'' says their mother Margaret, 36. ''But we're devout Southern Baptists, and we prayed until the storm ended at dawn. The Lord got us through.'' With daylight, however, the Gatches began appealing for more worldly aid. Harry, who trains employees of South Carolina Electric & Gas, and Margaret, a sixth-grade public school teacher, had bought their house for $155,000 two years earlier. They had also taken out one of State Farm's most comprehensive homeowners policies. For $534 a year, it guaranteed 100% reimbursement for the cost of replacing the dwelling and up to $105,975 for its contents. ''We thought our coverage was ample,'' says Harry. Soon after the accident, however, the Gatches discovered that having ''ample'' coverage is only the first step in recouping a loss. ''You wouldn't think you'd have to bicker with your insurer on a major claim,'' says Harry. ''But if you don't, you can't get to first base.'' The first hint of trouble came when the Gatches evacuated to a rented three- bedroom house a few blocks away. State Farm offered them only $500 up front for living expenses, despite the fact that the rent on the new place was $500 a month. The Gatches cited that problem in refusing the offer. The company soon boosted it to $2,500, and the couple accepted. Then a State Farm claims adjuster declared that their house could be fixed simply by jacking up the first and second floors, patching the walls and replacing the roof. When Harry mentioned that the Sheetrock and insulation in the walls were soaked, the adjuster assured him that they would dry out. ''The whole thing sounded impossible,'' says Harry, ''so I had two engineers check it out.'' The engineers told him the house could not be fixed without assessing the hidden damage. Because that would require removing flooring and opening up the waterlogged walls, Harry's builder said the entire repair job would cost $118,000. But State Farm offered only $56,000, and that was to cover lost possessions too. The Gatches rejected it. Finally, State Farm sent its own engineer to the house and increased its bid to $102,800 -- $18,000 for the contents, $4,800 for living expenses and $80,000 for repairs. The Gatches agreed to the first two figures but turned down the $80,000 as still too low. Only after State Farm's engineer and Harry's builder went over the house together did the Gatches accept an offer of $96,860 -- three months after Hugo. Why are such negotiations so tortuous? ''We want to pay policyholders exactly what we owe but not more,'' says Frank Haines, State Farm Fire & Casualty's vice president for claims. ''In the course of determining that amount, adjustments often have to be made -- especially for a large structural loss like the Gatches'. In their case, both our first estimate and their own builder's were off target. Even now, the settlement may not be exactly right. But if it's not, and we owe more, we'll send another check.'' -- S.S.

HOW TO SAFEGUARD YOUR HOME: Check your insurance policy, then be prepared to prove your losses and fight for your claim. Homeowners insurance will give top protection only when you have comprehensive coverage and are willing to stand up for your rights if your insurer balks. The best policies all share two key features. First, they provide open perils coverage, meaning that you are insured against damage from any risk except those that are specifically excluded -- such as earthquake, flood, war and nuclear accident. (Less comprehensive policies protect you only against fire, wind and a limited set of other calamities.) An open perils policy is usually referred to as Homeowners 3, and either that name or its abbreviation, HO-3, should appear on the first page of your policy. To obtain comparable coverage for your possessions, you must add an endorsement often called HO-15. Second, the best policies contain a replacement cost clause that obligates the insurer to pay the full cost of repairing or replacing your home -- not just its depreciated value -- up to the dollar limit of your policy. To get that protection, you must insure your home for at least 80% of the estimated cost of rebuilding it. (Your insurance agent can help determine the figure.) You need a separate endorsement to extend replacement-cost protection to your possessions. And check your policy limits on jewelry, fur, silverware and collectibles losses; you may need to add special endorsements known as riders for expensive items. Once you have your policy, review it with your insurance agent and ask for written answers to important questions. As further documentation, write out a room-by-room inventory of your possessions, and attach photographs or a videotape. Save all receipts for sizable purchases. And keep this documentation away from your home -- at your office, for example, or in a safe-deposit box. If you do fall victim to a disaster, gather repair estimates before the insurer makes an offer. Otherwise, you might accept a lowball settlement that seems fair to your untrained eye. Don't accept offers that aren't at least close to your experts' figures. ''A claims process is a negotiation,'' says Hugh Strawn, director of catastrophe services for the Property Loss Research Bureau. ''If you have several detailed estimates to back your claim, you have a very strong case.'' And don't accept an offer of help from a public claims adjuster unless you feel you simply cannot do the job yourself. These freelance adjusters typically charge 10% of any payments you receive. If you and your insurance company can't agree, write a letter to your state insurance commissioner. As a next resort, pay a lawyer $500 or so to resubmit your claim. But sue only if you don't mind waiting a year to collect your money and paying 25% or more of it to the lawyer. A cheaper, swifter route might be binding arbitration; the insurer should agree to split the fee, typically 2% to 3% of the disputed amount. And even after you settle, keep track of any unanticipated costs. ''Hidden damage is often found later,'' says Strawn, ''and if your contractor can document such problems, the insurer should pay.'' -- C.W.

AFTER THE GROUND TREMBLES PICKING UP THE PIECES OF A BUSINESS As the building in West Oakland shook violently last October, Dan Sanguinetti looked out his second-story office window and saw the four-foot-thick concrete pillars of double-decker Interstate 880 buckle and collapse in a cloud of dust not 30 yards away. ''I started yelling, 'The freeway's down, the freeway's down!' '' says Sanguinetti, 34. Then dust and smoke hid the tragedy from view. His brother Don, 29, a former fire fighter, quickly led Dan and 15 employees of their computer sales and service business down a dark stairway. ''As soon as we opened the door,'' says Don, ''we could hear the cries for help.'' For the next two hours, Don, Dan and the others worked feverishly -- alone at first, and later alongside the emergency crews -- to rescue survivors from the ruins. ''We found a fallen car that was standing on its end in the middle of the access road,'' says Don, ''but the young woman inside had been wearing her seat belt, and she actually walked away.'' Many others, of course, were not so lucky. ''We climbed up on the upper deck and managed to get a few people out, even though some vehicles were burning,'' Don says. ''But we left the dead because the living had to be top priority.'' All together, 62 people lost their lives in the quake -- including 40 in the highway collapse -- and another 3,757 were injured. Not until two hours later could Dan phone his wife Elisabeth, 32, who was waiting with their three-year-old daughter Lauren in nearby Orinda. Then Dan and Don, who is single and also lives in Orinda, began salvaging what they could from their damaged building. The two brothers carted away 60 to 70 personal computers, business records, office equipment, even the firm's 25 telephones, in Dan's pickup and Don's Ford Bronco to their respective homes. The next five weeks were an office manager's nightmare, as the Sanguinettis struggled to get their firm -- PC Professionals -- back in business. The sales manager directed his nine-person staff from a bedroom in Don's house, repairmen fixed computers in the garage, and a technician tested them in the laundry room, which was plagued by power problems. Things weren't much better at Dan's. Elisabeth checked merchandise in the garage-cum-shipping department while Dan, at the dining room table, sent clients the firm's temporary address. Exasperated, the Sanguinettis finally moved the business to an undamaged building in Oakland. Even so, PC Professionals managed to generate only about half of its normal revenues ($3.1 million in 1988) in the first three post-quake months. Indeed, the brothers doubt they'll ever reclaim all of their disaster-related losses, which Dan estimates at ''$100,000-plus,'' including a $12,000, 15-foot-by-30- foot billboard on the roof of the old building. ''Taking it down would cost $3,000,'' he explains, ''so it stays in place.'' ) Although PC Professionals is insured for $2 million, the policy does not cover quake damage, so the firm cannot file a claim for loss of income from business interruption. Dan did apply, however, for a Small Business Administration loan, seeking a total of $100,000 for new inventory and working capital. Meanwhile, the Sanguinettis continue to draw their salaries -- $48,000 each. They also reflect on the lessons their experience has taught them. ''I have two regrets,'' says Dan. ''One, that I didn't have a disaster plan in place, and two, that my daughter Lauren isn't in the office now. At least while we were working at home, I could hold her in my arms.'' -- S.S.

HOW TO SAVE A BUSINESS: The big risk is not property damage but the eventual loss of revenues, employees and customers. Entrepreneurs who cope with small disasters daily often neglect to protect their businesses against truly big ones. Sometimes they buy insurance only against property damage -- loss of buildings, equipment and inventory. But such losses can be dwarfed by the cost of shutting down a business temporarily, moving to new quarters, paying key employees' salaries and hiring other firms to fulfill your contracts so that you don't lose customers. You can get this kind of coverage by buying business interruption insurance as the Sanguinettis did; the one hitch in their coverage was that it did not cover losses resulting from an earthquake. Don't rely solely on insurance. Work out a disaster contingency plan that identifies potential emergency lenders, subcontractors to take over your work and real estate brokers who can find you temporary space. Keep copies of essential records, such as work orders and financial statements, somewhere besides your office in case the originals are destroyed. Should a disaster occur, make a detailed list of damage before you clean up, and document it with photos or videotapes. Besides supporting your claim, these could help you land a Small Business Administration disaster loan such as the one the Sanguinettis are seeking. The agency charges annual interest of only 4% if you can't borrow elsewhere, 8% if you can. You usually have to start repaying the loan after five months, although the SBA will sometimes grant extensions in special circumstances. The maximum term for an SBA loan is 30 years. -- C.W.

UNDAUNTED BY INJURY A SURVIVOR WHO NOW NEEDS INCOME Olidean Harvey was driving along I-880's upper deck toward Oakland when she felt her 1984 Chrysler New Yorker start to wobble. A flat, she thought as she glanced in the rearview mirror to see whether it was safe to pull over. What she saw terrified her. ''The freeway was buckling, and the road looked like it was folding up on me,'' says the 50-year-old self-employed manicurist. Suddenly her car dropped 20 feet to the lower deck. Harvey's next recollection is of sitting slumped behind the wheel, her back in agony. ''Get out! Get out!'' onlookers were shouting, as Harvey somehow dragged herself from the car. Helped over the guardrail to a parking lot, she lay there for two hours before being taken to Kaiser Permanente Medical Center for surgery on a fractured vertebra. She was discharged 10 days later and has convalesced ever since at her three-bedroom stucco home in El Cerrito. Besides her physical injury, Harvey has suffered a grievous financial blow. She is unable to work -- normally she earns $2,000 a month from her three- year-old nail salon in Richmond -- and doctors say she will be out of action until at least April. No one in her family can offer Harvey much help. She is divorcing her truck-driver husband, and their son Michael, 18, a student and part-time postal worker, makes scarcely enough to pay his own expenses. Harvey has applied for financial help from the Federal Emergency Management Agency, the Red Cross and a state program offering victims of the freeway crash up to $25,000. By year-end, she had approvals to get $10,400 from FEMA and $10,000 from the state. But those grants will barely cover her $19,315 in hospital bills. And the only cash she has actually received from official relief agencies has been a $47 Red Cross food voucher. Harvey's predicament is sadly common among entrepreneurs who are injured after keeping small businesses afloat by skimping on medical insurance and emergency savings. She opened her nail salon with $10,000 scraped together from savings and a loan from her parents. (An assistant and a part-time clerk are keeping the shop open, but it is losing $500 to $700 a month.) To reduce expenses, Harvey had decided not to replace her $200-a-month medical insurance policy after the insurer went out of business. Nor had she joined the state disability fund, which, for $260 a year in premiums, would have paid benefits of $224 a week for 52 weeks. Until she can work, Harvey's only steady income will be from two disability policies she bought in 1976. The policies, which cost $276 a year, promised to pay $417 a month for six months starting 14 days after injury. But benefits were held up until the insurers received medical forms. She got a $300 check from one company in late December but was still waiting in January for money from the other. Even when the benefits are paid, though, they'll amount to less than a third of her biggest monthly expense -- the $1,544 payment on her $147,000 home mortgage. Luckily, her S&L suspended her mortgage payments for six months because she is a victim of the earthquake. For now, Harvey's only other cash is an $800 gift from her church and a women's group. But her spirits remain high, as do her hopes of expanding her shop into a full-service beauty parlor. ''I'm not bitter,'' she says. ''I feel blessed to have family and friends, and I know things will work out when I'm back on my feet.'' -- S.S.

HOW TO INSURE YOUR INCOME: When buying coverage for your possessions, don't forget that you need to protect your earning power as well. To avoid having to rely primarily on charity and public aid after a disabling injury, as Olidean Harvey temporarily must, take a close look now at your own disaster plan. Ideally, you should have an emergency cash fund equal to at least three months' expenses. You might also open a personal or home- equity line of credit now, for emergency borrowing. And your disability- income insurance should promise 60% to 70% of your before-tax salary, starting 90 days after injury and continuing until you resume work or reach 65. Such coverage is expensive when you buy it yourself -- up to $1,300 annually for a 45-year-old nonsmoking executive. Fortunately, most large companies -- and about 25% of smaller ones -- offer some employer-paid coverage. Also, if you're self-employed in California, you can buy into the inexpensive state disability fund that Harvey passed up. (New Jersey and Rhode Island have funds too, but you must be incorporated to participate.) In the event of a disaster, by all means supplement your income with public and private relief. The Red Cross provides food, clothing and up to $1,000 for home repairs. The Small Business Administration can lend you as much as $100,000 to fix your house and $20,000 to replace possessions, whether or not you run a business (for more details, see page 59). The Federal Emergency Management Agency offers grants of as much as $10,400 to people who suffer serious financial hardship, up to 26 weeks of unemployment benefits to self- employed disaster victims who can't work, and up to 18 months of housing assistance for those who are left homeless. -- C.W.

THIS OLD HOUSE NEEDS CASH SAVING ONE LANDMARK OF A BYGONE ERA As Ray Clayton drives his wife slowly around their town of Los Gatos in the Santa Cruz foothills, she winces at the sight of elegant older homes damaged by the quake. ''They look like elderly people being tortured,'' says Robin, 42, who confesses to having ''a thing'' for older dwellings. It is a passion her husband shares. ''We've sacrificed many goals that other people work for -- savings, vacations, fancy cars -- in order to live in a house like these,'' adds Ray, 43, from the wheel of their '86 Toyota van. Just last spring, the couple paid $596,000 for a 95-year-old 10-room Victorian house once owned by Clara Burke, an aunt of San Francisco-born comedienne Gracie Allen. Subsequent owners restored the place, and -- an attraction for the Claytons -- the basement could accommodate most of the eclectic collection of antique furnishings and jewelry that they value at $150,000. Today the house is a ruin, and at least a third of the antiques are damaged. The earthquake heaved the building three feet off its foundation, causing the chimney to collapse into the den, the porch roof to sag off its posts and plaster to come down in sheets. Ray and Robin are holed up in a neighbor's cottage. A contractor who specializes in restoring Victorian homes put the cost of repairs at $350,000, a mighty sum compared with the $4,000 the Claytons have raised so far. FEMA gave them a temporary-housing allowance of $2,850. Their insurance agent added $1,000 for broken glass. And after a stranger walking by the house handed Robin $50, saying, ''Looks like you need it,'' Ray half- jokingly hung a collection box on the fence. ''We've gotten a few hundred dollars,'' he says, ''enough to help us eat out, which we have to do all the time.'' Buying their dream house was a stretch in the first place. The Claytons earn about $50,000 a year -- he as a self-employed real estate agent, she as a store decorator for Macy's in a local mall. They swung the deal by using the profit from their old home, a 1930s bungalow in an aging section of San Jose, for the $225,000 down payment. The former owner of the new house gave them a $311,000 mortgage, repayable over seven years at 10% (11% starting in 1993). Ray's mother provided a second mortgage for $60,000 at 10%. To help meet the $3,750 combined monthly payments, the Claytons rented out two second-floor apartments for $1,700 a month. When the earthquake hit, Ray was browsing at the mall waiting to drive Robin home. Neither was much alarmed. ''We're used to quakes,'' explains Robin, a native Californian. That fact made their first glimpse of the devastation all the more shocking. ''I was too stunned to feel anything until Ray started bringing stuff out,'' recalls Robin. ''Then I felt amazed every time he emerged alive.'' A few days later, the State Farm agent who had sold them their $325,000 homeowners policy told them they weren't covered for more than glass breakage because they didn't have earthquake insurance. Fortunately, when MONEY asked Stephen Prater, an insurance-law attorney in Santa Clara, to review their coverage, he quickly discovered that they did not recall a written offer of quake coverage when they applied for their policy, as is required by California law. That apparent oversight, Prater said, might make State Farm liable after all. On his advice, the couple applied for compensation. State Farm refused their claim at first, but after Prater wrote the company, it relented. Shortly before Christmas, it issued a $10,000 check for lost rent. Prater estimates that the Claytons could receive as much as $323,800 for the dwelling and $150,000 for its contents. Ray and some buddies have already begun preparing for repairs. Their first step was to tear off the porch in anticipation of jacking up the house. ''Funny thing,'' he says. ''When we opened the porch attic, an envelope addressed to Clara Burke fluttered out. It was postmarked in San Francisco eight days after the 1906 quake. We like to think it held a letter from Gracie's mom, telling Clara down in Los Gatos that the family had survived the quake.'' -- S.S.

HOW TO COVER FLOODS AND QUAKES: Insurance can be expensive, but it's worth buying if you're on shaky ground. Most homeowners rely on luck to protect them from floods or earthquakes because standard homeowners policies exclude those perils. Special insurance is available, but it can be expensive, since people typically buy it only if they live in a high-risk area. So even though trusting to fate may be your best defense, first make sure your risk is low. Although private companies sell most flood policies, you cannot buy this government-guaranteed insurance unless your community is among the 18,000 that $ participate in the National Flood Insurance Program. Luckily, that includes almost every place with a serious risk of floods. In fact, you may already be insured if your home is in a region that the NFIP has designated a special flood hazard area -- meaning that hydrologists calculate there is at least a 1 in 100 chance per year of a major flood. If those odds sound low, consider that they climb to greater than 1 in 4 over the life of a typical 30-year mortgage. Result: federally regulated lenders -- which include most banks and S&Ls -- aren't supposed to give you a mortgage unless you're protected. If you're not covered and want to be, find out from your insurance agent or the NFIP (800-638-6620) whether your community has joined the federal program. If it has, your agent should have a flood insurance rate map -- or you can buy one from the agency for $5 -- that shows whether you live in a special hazard area, a moderate hazard area (flood risk: less than 1 in 100 but at least 1 in 500 per year) or a minimal hazard area (risk: less than 1 in 500 per year). Even on moderate- or minimal-risk ground, your home may need protection: over 30% of insured flood damage occurs in such areas. The government-set premium usually ranges from $200 to $300 a year for a $150,000 house, regardless of where it's located. One exception: insuring a house that doesn't meet NFIP safety rules in a special hazard area could cost up to $2,000 annually. Judging your risks from an earthquake is more difficult. The U.S. Geological Survey offers maps that show major fault zones; you can see one at your planning agency or write to the Office of Public Inquiries, U.S. Geological Survey, Reston, Va. 22092 for a free national map. Unfortunately, geophysicists are still unable to predict earthquakes with precision. Most Californians, of course, would be well advised to carry quake insurance if they can afford it. The cost to protect a $250,000 frame house in San Francisco is $330 a year or more, depending on its age; in less quake-prone areas elsewhere in the state, the cost for a house of comparable style and price runs as low as $250. By contrast, in Memphis, which straddles a major fault line but hasn't had a big quake in 179 years, you would pay only about $100 for the same coverage. Prices bottom out at $50 or so in low-risk places like Tampa and Milwaukee. But don't count on a technicality to get you insured retroactively, as happened to the Claytons. Only California requires that you be offered earthquake insurance when you buy a homeowners policy. In other states, you must ask for it. -- C.W.

To readers: If you have experienced a disaster and would like to pass on to others a lesson you learned about protecting yourself beforehand or recovering afterward, write to MONEY, Disaster Lessons, Time & Life Building, Rockefeller Center, New York, N.Y. 10020. We will publish the best tips in a future issue.