Beyond Emergency Savings: 3 Overlooked Money Tools That Can Protect You for the Long Haul
Written by
Laura Bogart
Edited by
Kristen Mae
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If there’s one thing a classic fable and a smart piece of financial advice have in common, it’s the recommendation that you save wisely for emergencies. Whether you’re a squirrel or an ant stashing away nuts and grain for the winter, or just a human with a solid emergency fund, you understand the value of preparing for financial “cold seasons.”
While that grain and those nuts will get Ant and Squirrel through the winter, people need a stronger financial safety net than emergency savings alone. You’ll need to weave strong financial products and protections into your net, including various forms of insurance.
When it comes to preparing for financial emergencies, your concerns might range from how you’d support yourself if you became incapacitated to how you’d cover the cost of care later in life without draining your retirement savings.
There are smart ways to protect yourself and your loved ones from these long-term financial risks — but there are also some important things to know and questions to ask as you put protections in place.
Disability Insurance
You may know what disability insurance is, but you might believe it only applies if you’re injured on the job. In reality, disability insurance can support you if you’re sidelined by a chronic illness, mental health condition or accident — regardless of whether it happened at work.
And if you think you’ll be fine relying on workers’ comp or Social Security Disability Insurance (SSDI), keep in mind: those programs often don’t cover essential living expenses like your mortgage, utilities or groceries.
There are two main types of coverage:
- Short-term disability insurance covers temporary injuries or illnesses, like recovering from surgery or taking maternity leave. This form of insurance typically kicks in after a waiting period of 7 to 14 days and lasts up to six months.
- Long-term disability insurance covers more serious or prolonged conditions, such as cancer or major injury. This form of insurance kicks in after your short-term policy runs out and, true to its name, can last for several years or even until retirement, depending on your policy.
When setting up your policy, make sure your policy includes an “own-occupation” provision, which pays benefits if you can’t work in your specific profession — even if you’re able to do other types of work.
Long-Term Care Insurance
While disability insurance is essential during your working years, long-term care insurance becomes important as you look ahead to the golden years of retirement.
Whether you’re worried about the slings and arrows of old age or have a family history of health conditions that might leave you vulnerable to medical costs that could drain your retirement savings, long-term care insurance can give you peace of mind.
The right long-term care policy can help you maintain your dignity and quality of life as you age, covering the cost of care services at home, in assisted living or a nursing home. That’s important, because the average cost of a private room in a nursing home can easily exceed $100,000 a year. And standard health insurance, including Medicare, doesn’t cover long-term custodial care.
To get the best value, purchase your policy sometime in your late 50s or early 60s, since premiums are cheaper when you’re in relatively good health. As you explore your options, work with a professional to determine:
- A daily or monthly benefit amount
- The benefit period (how long benefits will last)
- Inflation protection, to help ensure your benefits keep pace with rising care costs
Life Insurance
Life insurance is one of the more straightforward forms of financial protection. It’s there to make sure your loved ones are supported if you pass away, from covering your mortgage to funding your children’s education to repaying any debts you’ve co-signed.
But there’s more to life insurance than a death benefit.
Some policies, such as whole life or universal life insurance, include a cash value component that grows tax-deferred. You can borrow against it to help with big goals like buying a home or covering education costs. In a pinch, you can also borrow against it if you’re hit with an emergency expense and don’t want to raid your retirement or savings accounts.
Bottom Line
Emergency savings are crucial, but they’re just the beginning. From disability and long-term care to life insurance, the right protections can provide the financial buffer you need when life throws you a curveball. And while these tools can go a long way toward protecting your future, it’s just as important to ask the right questions, understand your options, and tailor coverage to your family’s unique needs.
Looking to build a legacy? Check out our Life to Legacy guide for expert advice and smart moves you can make today.
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