Why your emergency fund and insurance work better together

If you’ve managed to build up a decent emergency fund, give yourself a pat on the back. Having that financial cushion is brilliant, and it shows you’re thinking ahead. But here’s something worth considering … While your savings are fantastic for handling life’s smaller surprises, they might not stretch far enough when bigger challenges come knocking.

The self-insurance trap

Some people decide to “self-insure”. Which basically means they plan to use their own savings to cover any unexpected costs rather than paying for insurance. If you’re good at saving, this might seem like a smart, straightforward approach. The catch? Most of us underestimate just how quickly those savings can disappear when something serious happens.

Let’s get real for a moment

Say you’ve followed the standard advice and stashed away three months’ worth of living expenses. That’s impressive. But now imagine this. What if an injury or illness keeps you away from work for six months or longer? Would your emergency fund cover everything from your mortgage or rent, all your bills, food, and potentially medical costs too?

And what about your partner? If they needed to take time off to look after you, would there be enough money to manage? Or if something happened to you, would your family have the financial support they need?

These aren’t easy questions to think about, but they show us where savings alone can fall short. While your emergency fund is perfect for short-term hiccups, it often can’t handle longer setbacks or major health events.

What insurance brings to the table

Think of insurance as your backup plan for the bigger stuff. A good insurance setup means you can access the money you need without completely draining your hard-earned savings or getting off track from your other goals (like buying a home or planning for retirement).

Depending on what cover you choose, personal insurance can replace some of your income if you can’t work due to illness or injury, get you faster access to private healthcare and treatments that might not be publicly funded, provide financial support for your family if you pass away, or give you a lump sum payment if you’re diagnosed with a serious illness – to use however you need.

Here’s something interesting: according to the Financial Services Council, insured New Zealanders receive over $1 billion each year in claims across life insurance, trauma cover, and income protection¹ . And around a quarter of health insurance claims come from people under 45² . These aren’t just statistics – they’re real Kiwis who’ve needed support earlier than they expected.

The best of both worlds

Here’s the good news, you don’t have to choose between saving and getting insurance. In fact, they work brilliantly together.

Use your rainy-day fund for those smaller, short-term emergencies. Like the car breakdown, the broken appliance, the unexpected vet bill. Let your insurance handle the bigger, longer-term risks that would be really difficult to fund yourself.

Having savings can actually help you save money on insurance too. Because you’ve got that financial buffer, you might be able to choose a longer waiting period on income protection, knowing you’re covered in the meantime. You could select a higher excess on your health cover and use your emergency fund for those upfront costs. Or you could adjust your cover levels to something that fits your budget better while still giving you proper protection.

Why going it alone can be risky

Self-insurance sounds doable in theory, but in practice, several things can get in the way. Maybe you haven’t had enough time yet to build up a really substantial buffer. Perhaps your savings are already earmarked for something specific, like a house deposit or retirement. Life might throw two or three challenges at you at once. You could end up having to borrow money to fill the gap. Or, like many Kiwis, you might find that just saving anything feels tough with everyday expenses.

Even households that plan carefully can be caught off guard. And while crowdfunding platforms can offer wonderful community support in a crisis, they’re not a reliable financial plan.

Let’s build something stronger

Being truly prepared means knowing that whatever life throws at you, you’ve got proper financial support in place.

If you’d like to chat about your insurance needs, get in touch. Our Insurance Advisers can help you work out what cover makes sense for your situation and tailor it to fit your goals and budget.

Talk to us today, and let’s build a safety net that works for you, your family, and your future.

Sources:
1. Financial Services Council – Life Insurance Industry Spotlight June 2025
2. Financial Services Council – The Perception Gap and Health Insurance

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 development or address your situation. Before making any decisions based on the information provided in this article, please use your discretion and seek financial advice. Link Financial Group 2022 Ltd (FSP1004590) holds a licence issued by the Financial Markets Authority to provide financial advice.

Photo by Gustavo Fring