Emergency Fund: Why, How and Where to Keep It?

What Is an Emergency Fund?

Why Emergency Fund Is Important?

How Much Emergency Fund Should Have?

Where to Keep an Emergency Fund?

How to Save Money for an Emergency Fund?

How to Use an Emergency Fund?

FAQs About Emergency Fund

Is keeping an emergency fund worth it?

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If you are living without any safety, then you are living on the financial edge and might run into a crisis. But if you are prepared with emergency funds, it provides you with the confidence that you can tackle any unexpected moment of your life without worrying about money.

Where can I park my emergency fund instead of a bank?

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Instead of a bank, an emergency fund can be kept at:

  • Higher-yielding money market accounts
  • Credit unions
  • High-yield checking accounts
  • Peer-to-peer (P2P) lending services.

What is the difference between a rainy day fund and an emergency fund?

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A rainy day fund is usually smaller than an emergency fund and is most commonly used for unexpected, one-time, small amounts. While an emergency fund has comparatively more money involved in it and is being used for more emergency purposes like medical expenses, etc.

Should I keep my emergency fund in a policy with a surrender value?

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Keeping your emergency fund in a life insurance with a surrender value is generally not advisable. Emergency funds should be easily accessible and liquid, while policies with surrender values may involve fees and delays when accessing funds. 

What is the difference between term insurance and an emergency fund?

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An emergency fund helps you handle temporary financial shocks, like hospital bills or car repairs. Term insurance provides a lump sum to your family if you pass away, ensuring their financial stability.

How much should one save in an emergency fund for unexpected medical expenses?

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Experts recommend saving 3-6 months' worth of expenses, but healthcare costs can be unpredictable. While an emergency fund helps with immediate medical needs, having a health insurance policy covers major hospital expenses, surgeries, and treatments, preventing financial depletion due to high medical bills.

Disclaimer

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  • This is an informative article provided on 'as is' basis for awareness purpose only and not intended as a professional advice. The content of the article is derived from various open sources across the Internet. Digit Life Insurance is not promoting or recommending any aspect in the article or its correctness. Please verify the information and your requirement before taking any decisions.
  • All the figures reflected in the article are for illustrative purposes. The premium for Coverage that one buys depends on various factors including customer requirements, eligibility, age, demography, insurance provider, product, coverage amount, term and other factors
  • Tax Benefits, if applicable depend on the Tax Regime opted by the individual and the applicable tax provision. Please consult your Tax consultant before making any decision.

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