If you’ve worked hard to build up a solid emergency fund, that’s something to be proud of. Having a financial safety net in place shows you are looking to the future. But it’s worth taking a moment to consider whether your savings alone is enough if life takes an unexpected turn.
The problem with relying solely on savings
Some people choose to “self-insure”. This means relying on their own savings instead of holding insurance cover. It sounds logical, especially if you’re a disciplined saver. But the challenge is that serious life events have a way of draining savings far faster than most people anticipate.
Running the numbers honestly
Imagine you’ve done everything right and you’ve saved three months’ worth of living expenses as your buffer. That’s a genuine achievement. But consider what would happen if illness or injury kept you out of work for six months or more. Could that fund realistically cover your mortgage or rent, household bills, groceries, and medical costs all at once?
And if your partner needed to step back from work to support you during that time, how long would your savings actually last? If the worst were to happen, would your family have the financial foundation they need to carry on? These aren’t comfortable questions, but they really matter. They highlight exactly where savings, however well-managed, can leave gaps.
What insurance actually does for you
Think of insurance as the layer of protection designed for the bigger, longer-term risks. The ones that would genuinely stretch or wipe out most savings. The right cover means you can face those situations without derailing your financial goals. Depending on what you choose, personal insurance can:
- Replace a portion of your income if you’re unable to work due to illness or injury
- Give you faster access to private medical treatment or procedures that may not be publicly funded
- Provide financial security for your family if you were to pass away
- Pay out a lump sum if you’re diagnosed with a serious condition, giving you flexibility to use it however you need.
According to the Financial Services Council, New Zealanders receive over $1 billion each year in personal insurance claims spanning life, trauma, and income protection cover1. Around a quarter of health insurance claims are made by people under 452, a reminder that these events don’t only affect older Kiwis.
Savings and insurance are stronger together
The good news is that you don’t need to choose one over the other. In fact, your emergency savings and your insurance cover are most effective when they’re used together with each doing the job it’s best suited for.
Use your savings for the day-to-day surprises: an unexpected car repair, a broken appliance, an emergency vet visit. Let your insurance carry the weight of longer-term or more serious events that would be genuinely hard to self-fund.
Having savings can also help reduce your insurance premiums. Because you have a financial buffer in place, you may be able to:
- Choose a longer wait period on income protection, knowing your savings can bridge the gap initially
- Opt for a higher excess on health cover, using your fund to cover those upfront costs
- Calibrate your cover levels to better suit your budget while still maintaining meaningful protection
Why self-insurance alone is a risk
Self-insurance is appealing in theory, but it faces some practical hurdles. Even the most financially prepared households can find themselves caught out when:
- Savings haven’t yet had time to accumulate to a meaningful level
- Funds are already committed to specific goals, like a home deposit or retirement savings
- Multiple challenges hit at the same time
- Debt becomes necessary to fill the gap
- Everyday costs make consistent saving difficult in the first place
Community fundraising and crowdfunding can provide meaningful support in a crisis, but they’re not something you can plan around. A proper financial safety net needs to be something you can count on.
Let’s make sure you’re covered
Financial preparedness means knowing that whatever happens, you have solid support in place.
If you’d like to explore what insurance cover might look like for your situation, the team at CM Financial Advisers is here to help. We take the time to understand your goals, your budget, and what matters most to you. From there we will help you put the right protection in place.
Get in touch today, and let’s build a financial safety net that works for you and your family.
