Term insurance and emergency funds are both necessities for your financial strategy and portfolio. Emergency funds will help you get money to meet quick or urgent needs, while term insurance will be a boon for your family in case you pass away all of a sudden. Both these plans are the foundations of any plan to ensure financial security for your family.

Understanding the Role of an Emergency Fund

Emergency funds are those funds which you can draw on immediately to meet pressing and urgent requirements. Hence, this is one sum of money that should be liquid and easily accessible. It will help you cover costs such as wedding costs, repairs for your home, gadget or vehicle breakdowns, and a lot more. In an ideal scenario, aim to save at least 6-12 months of your monthly salary for your fund. Avoid creating an emergency fund with a long-term investment that will stay locked for a specific duration.

Understanding the Role of Term Insurance

Term insurance is like that long-term security option that you can rely on. Your family will not have to financially grapple with your absence in case of an untimely mishap during the policy period. They can simply use the sum assured from the insurer to take care of day-to-day costs, higher education, weddings, and even repayment of any debts that you may leave behind. They can simply use this payout to cover all their financial requirements without being at the mercy of friends, relatives, and others. You can also expect attractive tax benefits on these plans alongside.

How Term Insurance and Emergency Funds Complement Each Other

Both term insurance and emergency funds complement each other wonderfully. Liquidity is instantly possible with emergency funds and this will help you take care of anything that crops up in life. Term insurance, on the other hand, is the bigger safety net and you will gain mental peace from knowing that your family will be financially okay if you are not there anymore.

You can thus opt for a high coverage amount, which is at least 15-20 times of your annual salary (if not more) when you choose term insurance. Also build a year’s worth of your income as your emergency fund. Whenever you get a bonus, you can add to this amount. This will give you all-round protection from a variety of scenarios. Emergency funds will be enough to take care of sudden car/bike repairs, home repairs, gadget or appliance breakdowns, sudden school/college fee increases/deposits, medical costs that are not covered by insurance, and so on. Term insurance will be that long-term safety net that your family can always count on.

Conclusion

Thus, it is essential to incorporate both term plans and emergency funds into your financial blueprint. They should be the first two things you implement before starting investments elsewhere. Evaluate your present financial security quotient and then consider choosing both these options without further delays.

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