Life can be unpredictable, which is why it’s so important to be prepared for unexpected challenges. Building an emergency fund and having income protection cover are two key strategies that can provide you and your loved ones with a financial safety net.
Why emergency funds matter
An emergency fund is a dedicated amount of money that’s set aside to cover unexpected costs, such as medical emergencies, car repairs, or sudden job loss. This fund acts like a financial cushion, allowing you to keep meeting your financial commitments and living costs without the added stress of potentially going into debt.
Tips to build an emergency fund
Set a realistic goal: Generally, it’s recommended to aim for having three to six months’ worth of living expenses saved. However, amount you save is a step in the right direction.
Automate your savings: Setting up an automatic transfer to your emergency fund each month can make saving easier. Start with an amount that fits comfortably within your budget and adjust as necessary.
Separate the account: Dedicating a separate savings account for your emergency fund can help avoid the temptation to dip into it for non-emergencies.
Stay consistent: Building a fund takes time. Make regular contributions, even if they’re small. Consistency adds up over time.
When emergency funds aren’t enough
While emergency funds are invaluable, they sometimes may not cover long-term income disruptions due to illness or injury. That’s where income protection insurance could come in.
How income protection insurance can support you
Income protection cover is designed to replace a portion of your income if you’re off work due to a serious illness or injury. This kind of coverage can be a financial lifesaver, helping you maintain your lifestyle and meet your financial obligations during recovery.
Benefits of income protection
Monthly income: With income protection, you’ll receive a regular payout, typically up to 75% of your gross income (although you can insure a lower amount if you’d like, to keep your premiums down), if you’re unable to work due to illness or injury as specified in your policy.
Tailor your cover: Policies can be tailored to fit your unique needs, including wait periods and benefit periods. For instance, you could choose a short waiting period for a faster payout or a longer benefit period for extended peace of mind. Talk to a LifeDirect adviser to determine options that are best suited to your circumstances.
Reduced financial pressure: With income protection, you may not need to exhaust your emergency fund or rely on credit options, helping you maintain your financial stability during recovery.
Building resilience with both strategies
For comprehensive financial resilience, a combination of an emergency fund and income protection can be highly effective. Here’s how they can work together:
Short-term vs long-term: Your emergency fund can be there for immediate, short-term needs, while income protection can help cover longer-term income gaps.
Less dependence on savings: Income protection reduces the risk of draining your emergency fun for extended recoveries, keeping those savings intact for future needs.
Peace of mind: With both a healthy emergency fund and income protection in place, you can feel more secure, knowing you’re prepared for both the short and long haul.
Ready to secure your future?
Whether you’re exploring income protection for the first time or want to review your existing policies, our friendly team is here to help. We’ll guide you to find the right cover that’s tailored to your specific needs and goals. Get in touch with us here or call us on 0800 800 400 today.
Disclaimer: Please note that the content provided in this article is intended as an overview and as general information only. While care is taken to ensure accuracy and reliability, the information provided is subject to continuous change and may not reflect current developments or address your situation. Before making any decisions based on the information provided in this article, please use your discretion and seek independent guidance.
