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Many of us love a roller-coaster ride in the amusement park, but very few would like a roller-coaster ride in real life. That is the reason many of us have already secured insurance for the big issues in life, like health, home, and car. But even when you have these firmly in place, it still makes sense to have an emergency fund of cash available. “Why do I still need an emergency money fund when I’m all set up?” you may ask. We’ve identified three reasons:
1. All insurance policies have limitations
Take home insurance for an example. If serious damage is done to your home by a natural disaster, you may not be able to recover your financial loss at all, because the cause of damage may fall within the meaning of “acts of God”. Even where the cause is not excluded, if you opted for a deductible when you secured your insurance, you will still be responsible for that amount of cash.
2. If there’s a waiting period, expect to pay first
Let’s not forget there is often a waiting period during which you will need to meet the expenses out of your pocket. In the end, an insurance policy will only greatly lessen your loss, it can never make the experience free of inconveniences.
3. Not everything in life can be insured
You can only secure insurance for the obvious uncertainties in life – not ALL uncertainties in life.
How to set up and grow an emergency fund
There is a bit of a paradox here – you want your emergency money fund to be readily available when you need it, but you don’t want it to be too easily available – otherwise you will spend it without knowing.
One way to set up and grow an emergency money fund is to open a dedicated bank account for it. That way, you can put a set sum of money into it every month (perhaps with a standing order with your bank), and withdraw the money at any time to meet unexpected medical expenses, for example. Because the emergency fund is not mixed with your other savings, you will know when you’re spending it.
All that being said, the heavy lifting in seeing you through a health crisis should be the work of your health insurance. Our friends at Pacific Prime have over 20 years of experience in insurance, and with their expertise and unbiased advice, they can surely help you secure a sound health insurance plan for you and your loved ones.