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Life Insurance vs. Emergency Fund: Why You Probably Need Both
When the worst happens in life, you or your loved ones ideally need funds to fall back on. But how best to ensure money is there when itâs needed?
Two leading options are to build an emergency fund to cover unexpected expenses when youâre alive, or to invest in a life insurance policy that pays out when you die. Many people will need both forms of financial protection, but how best to decide how and when each should be funded?
Understanding when an emergency fund and a life insurance policy comes into play â and how to potentially afford both â will help you prepare for the future. Hereâs a rundown of the best role for each of these financial sources, with tips on when and how to arrange for each.
The role of an emergency fund
No matter how careful you are, life has a way of throwing hurdles and hiccups in your direction. Whether itâs a flat tire, a broken appliance or a pet that needs emergency veterinary care, an unexpected expense can easily burn a hole in your finances.
An emergency fund helps you cover those unforeseen setbacks without having to rely on increasing your debt. A fund can also help in the event of an unexpected loss of income. If youâre let go from your job or your hours are cut, that emergency balance can help you pay for essential expenses, such as your rent and utilities, and so give you time to get back on your feet.
Ideally, an emergency fundâs balance should be enough to cover between three to six monthsâ worth of expenses. If that goal sounds all but impossible, start small; any amount is a good starting point. Over time, you can build your savings month by month until you meet that goal.
If youâre wondering how to start an emergency fund on a tight budget, these tips may help:
- Sign up for a high-yield savings account (HYSA): A HYSA pays a higher rate of interest than other savings accounts, which can help your money to grow faster.
- Track your spending: Creating a budget and tracking your spending can reduce the number and value of the unnecessary or impulse purchases you make, freeing up more cash for your emergency fund.
- Get a side gig: If money is tight, you may need to boost your income to have enough cash to build an emergency fund. A side gig can be a good way to increase your income during your free time.
The purpose of life insurance
Some people use life insurance as part of their estate planning and to build generational wealth. But the most prevalent purpose of life insurance is to provide for those who survive you after you die.
If you were to pass away suddenly, life insurance aims to help your loved ones cover expenses without your income. For instance, if you have young children, a life insurance policy could help pay the home mortgage and your childrenâs college education.
Life insurance needs vary by the individual, of course, but one general guideline is to purchase a life insurance policy with a death benefit equal to 10 to 15 times your annual income. For example, if your salary is $60,000 per year, you would buy $600,000 to $900,000 in coverage.
That might sound like a huge purchase, but term life insurance â the least expensive form of life insurance â may be more affordable than you think, especially if you buy it when youâre relatively young. For example, the monthly price for a $250,000 20-year term life insurance policy can be as little as $15 or so for a healthy 30-year-old, whether male or female.
Insurance vs. fund: when each option is needed
Emergency funds and life insurance policies provide critical protection. In some circumstances, you may need both. When deciding which you need, ask yourself the following questions:
You most need an emergency fund if:
- You work in a volatile industry: If youâre employed in a field that is particularly prone to market changes or layoffs, such as finance or technology, youâre more likely to have a lapse in employment, and it may take longer to find a job. You likely need a larger emergency fund than workers in other fields.
- You lack multiple streams of income: Youâll be better able to weather financial storms if you have sources of income other than from your own job, such as a spouseâs salary or earnings from a side business. But if you lack such supplemental income, and rely on a single paycheck, an emergency fund will be especially important to ensure you can cover your bills.
- Youâd struggle with an unexpected expense: Besides coping with job loss, an emergency fund helps pay for expenses you didnât anticipate. If you have little to no financial cushion now â say to repair your car if it breaks down or for travel to be with a sick loved one â itâs all the more important that you build an emergency fund thatâs sufficient to cover such out-of-the-blue expenses.
You most need life insurance if:
- You have children: Life insurance is an essential component of protecting your family as parents. A life insurance policy ensures there are funds to help pay for the care and education of your family if you were to pass away unexpectedly.
- You have a non-working spouse: If your partner stays at home, theyâre dependent on your income, so you need a life insurance policy to provide for them in the event you pass away.
- You have other dependents: Even if you donât have children, life insurance may still be a necessity. If you have other dependents or those who rely on you for financial support â such as an elderly parent or a sibling with a disability â life insurance can provide for their continued care after your death.
Protecting your finances
Emergency savings and life insurance may compete for your limited funds, but each has its own role within your finances. An emergency fund can help cover unexpected expenses or income loss, while life insurance helps make your loved ones financially whole in the event of your untimely death.
Itâs true that a sizable emergency fund â one that contains three to six months of income â can help fill the gap in the event of your unexpected death. But the extent of that help is likely fairly modest â at most in the five-figure range. That falls well short of the six figures thatâs generally recommended for life insurance, under the formula that a policyâs death benefit be 10 or more times your annual income.
The upshot: More than likely, both emergency funds and life insurance should play key roles in your financial planning. When it comes to these cornerstones of personal finance, few families need only one.
A final tip, if you happen to be holding more than six months of expenses in your emergency-fund savings account: consider directing the excess funds to a vehicle that earns you more, like an investment account.
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How My Dog Became an Unexpected Source of Healing
âThe place of true healing is a fierce place. Itâs a giant place. Itâs a place of monstrous beauty and endless dark and glimmering light. And you have to work really, really, really hard to get there, but you can do it.â ~Cheryl Strayed
My memories of my sister are much hazier than they used to beâsomehow less crisp and colorful than before. But time has a way of doing that. Images of her that used to show up in bold, bright colors in my mindâs eye have slowly faded to black and white, with various shades of gray and silver popping in from time to time, almost as if to keep me on my toes and keep her memory alive.
I can still remember her last days, the light slowly dimming from her eyes as she lay bound to her bed, no longer able to move or eat on her own, with feeding tubes in her nose and various devices surrounding her for those inevitableâand fear-gripped moments when she needed help breathing.
Like the rest of my family, I would take my turn staying in her room, checking on her to make sure she was still breathing. It was always the same routine. With anxiety creeping into my chest, I would place one hand on her belly to make sure it was still rising and falling while leaning in close to her nose, listening for the soft sound of her breath. A sigh of relief would pass through me every time I heard her gentle exhale.
The night she passed, I had just finished performing that very ritual, rising to leave only once I felt the repeated slow, steady rise and fall of her belly and the soft whisper of her strained breath on my face. I can still remember walking back into the family room and gratefully announcing, âSheâs okay.â
Maybe it was motherâs instinct, but only moments later my mother rushed back into my sisterâs room. Her sense of urgency took me by surprise since I had just left the room and everything had been fine. I assumed she didnât think I could be trusted and needed to see for herself.
It wasnât long before I heard the sound of my motherâs screams through the thin walls of our small duplex. I knew right away what it meantâmy sister had stopped breathing.
For a long time afterward, I blamed myself for not having been in the room when she took her last breath, and for leaving her alone in those last few seconds. If I had just stayed another minute, I could have been with her. Instead, I had left the room right as she had been getting ready to leave the world.
The months that followed were a blur of pain, confusion, and disbelief as I tried to make sense of a world without her in it. At ten years old, I was too young to understand how much my parents were hurting or how deeply my sisterâs death affected them. I mistakenly thought their withdrawal and anger were because of something I had done. Maybe I was the one who had messed upâmissed the signs that could have saved her night. Or maybe I was the one who they wished had died instead.
Those thoughts became the foundation for years of self-punishment after my sisterâs death. I found myself struggling with feelings of self-hatred and inadequacy, which often showed up as eating disorders, self-harm, and feelings of unworthiness.
Survivorâs guilt and the belief that I was the âbadâ daughter who didnât deserve to live only added more shame and self-doubt that I couldnât shake off. But as I got older, I learned to shut the painâand the memoriesâout.
Soon, I stopped thinking about that night altogether. I convinced myself that I had moved past it, telling myself that time really does âheal all wounds.â I couldnât have been more wrong.
It would take me decades to understand that time hadnât actually healed anything. I had just pushed the memories so far down that they became buried under layers of guilt, shame, and unresolved grief, waiting to resurface when I was ready to face them.
The truth is, time doesnât heal all wounds unless we do the work to heal them ourselves.
My own healing came in an unexpected way after years of trying to prove my worthiness through constant people-pleasing, overworking, over-committing, and deliberately taking on more challenging projects and activities, both personally and professionally, just to prove that I mattered and was deserving of my life. I still hadnât forgiven myself for being the one that lived when a soul as beautiful, bright, and loving as my sister hadnât.
I finally realize now that it wasnât even the rest of the world I was trying to prove my worth toâit was myself. And if it hadnât been for my dog Taz, Iâm not sure if I would have ever come to that realization.
When I first rescued him, I was unknowingly bringing Taz into my life as yet another way of trying to prove I mattered. Having been severely abused and fresh off a major back surgery, he could barely walk when I first took him in.
His (understandable) anxiety had created severely destructiveâand, at least initiallyâfear- and pain-based behavior that made him particularly challenging. I can still remember countless friends saying to me, âYou know you canât do this. What are you trying to prove? Heâs too much for you.â But my self-punishment game was strong, and their words only pushed me to try harder.
For his entire first year with me, I would carry him around in his special harness like a suitcase, setting him down for short spurts so he could get the feeling of putting weight on his legs and paws and build enough strength to start walking.
In the beginning, he couldnât understand that he had to lift his paws and set them down again to walk, so he would drag them instead, scraping his paws until they were raw and bloody within seconds and prompting me to pick him right back up and carry him again. (I can only imagine what others thought when they saw my 5â2 frame carrying a seventy-pound pitbull around like a duffel bag!)
That drill went on for months. Inside the house, I would bring him into the carpeted rooms and teach him how to place his pawsâdown on all fours and crawling along the floor with him as my other dog, Hope, did her part and pranced around showing him how she did it. Slowly, he started to understand. And even more slowly, he started to walk.
A year later, he was running, which turned into sprinting a few months after that. Another three years after that, he was (cautiously) able to go up and down stairs. And seven years after he came to me, just when it seemed that he was at his strongest yet, he was diagnosed with a rare form of cancer.
âHe has hemangiosarcoma. The tumor is on his heart, and every pump is spreading it throughout his body. Thereâs nothing we can do. He has about ten days before his heart will stop pumping.â
What had started as an emergency visit for his stomach issues had turned into a death knell for Taz.
The thought of this being the end of his story, when he had already been through so much and finally made it to the other side, seemed unfathomable. In some ways, it was the biggest challenge I had faced yet, and I was determined to save him.
I didnât sleep the night of his diagnosis. Or most of the nights after that. Instead, I found myself waking up almost every hour, gazing at him sleeping by my side, tears gathering in my eyes, and wondering how I could save himâand what else I needed to sacrifice to keep him by my side.
I initially failed to grasp that his illness was the beginning of my healing. And the darkness that would ensue was actually the beginning of the light that would start pouring into my childhood wounds.
As the pain eclipsed me in those dark, late-night moments, I didnât even realize what I was doing at first. What started as just trying to soak in every moment with him had triggered the very ritual I had performed for so long as a child. Only this time, it wasnât my sister I was watching overâit was Taz.
Every time I woke up and gazed at him throughout the night, I would place my hand on his belly to make sure it was still rising and falling and lean in close to see if I could hear him breathing.
Just like that, I had brought myself right back into the unresolved trauma loop that I had buried and ignored so long ago. When the realization hit me, I immediately felt transported back to that night decades agoâto that last moment with her, the last time my hand had been on her belly.
I understood then that I had never truly healedâI had only learned to suppress it. I also realized that the shame, blame, and guilt I had carried for so long had never really left me and were still huge parts of who I was and had been for decades after she died.
All the unshed tears, anger, and grief that I had never processed came pouring out. I wept for hours. And every time I thought I was out of tears, a new stream would surface.
That ritual lasted every night for thirty-four days. Courageous as ever, Taz had outlived the ten days he was given, and on the thirty-fourth day, my Tazzie Bear left me. Only this time I was in the room.
Somehow, we both knew the time had come, and as he lay his head in my lap one last time, gazing lovingly one more time into my eyes and proceeded to take his last breath, I felt his soul leave his body. And somehow, an unexpected sense of peace seemed to have entered mine.
That beautiful, amazing soul of his had taken my pain with him, and in the process, he had somehow broken the trauma loop I had unknowingly been caught in all those years.
His death had helped me heal years of pain I didnât even know I was carrying. As I sat there, holding him in his final moments, I realized that his presence had been the biggest gift I had ever received.
For animal lovers, this next sentence will make perfect sense: Taz had been far more than my pet; he had come to me as a lifeline, guiding me into my next chapter of healing and self-discovery.
Because of him, I had officially started a new chapter of my life. One that was free from the debilitating shame, guilt, and pain I had carried for so long. And in that quiet moment, I understood that healing isnât linearâitâs a journey, often led by the most unexpected teachers.
And I will forever be grateful that I was lucky enough to have him as one of my teachers.
About Afsheen Shah
Afsheen Shah is a lawyer-turned-life coach who helps women over 40 reconnect with themselves and create a life that that feels more meaningful and fulfilling. Blending mindset work, spirituality, and intentional lifestyle shifts, she guides women to rediscover their joy, reclaim their voice, and build a life that aligns with who they truly are. Visit her at www.afsheenshah.com and on Instagram @afsheenshah.
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