There’s a lot to be said for building up a big emergency fund. It can definitely come in handy if you’re ever faced with a crisis, and for a lot of people, this brings huge peace of mind.
But one of the other great things about having a huge stash of cash on hand is that it makes canceling certain insurance policies justifiable. This is because, if you have enough money in your bank account to handle a very large expense – one that most people need insurance to be able to pay for – you can afford get rid of a policy that’s costing your more every month than it will likely ever pay out.
So which types of insurance can you bid farewell to if you have a large emergency fund? Consider these three policies optional:
Short-term disability insurance
The purpose of short-term disability insurance is to replace your income if you come down with a semi-serious illness that will keep you out of work for several months. For people with little savings, this type of insurance policy might be a necessity. But if you have a big emergency fund – think 6-12 months of expenses – you could pay for short-term unemployment on your own. This means that, if you’ve saved up a decent pile of cash, short-term disability insurance probably isn’t necessary for you to purchase.
Collision auto insurance
Most people carry collision insurance because their auto loan provider requires them to. But if your car is paid off and you have a lot of money in the bank, you probably don’t need it anymore.
Again, this goes back to the purpose of collision insurance, which is to cover the cost of replacing your vehicle in the event that you’re in a serious accident. But insurers will only pay out what the car is worth, and by the time most cars are paid off, their value has dropped substantially. So if you have a big emergency fund, you likely have enough to cover the cost of a new vehicle should yours be totaled in a crash. This means that it’s probably safe to kick collision to the curb.
Many pet owners who don’t have a lot of money saved purchase pet insurance to cover their critter if it winds up in the vet’s office with a serious illness or injury. Again, if you’re short on reserve funds, this can be a lifeline. But if you have a substantial savings, you can probably handle paying for a large vet bill on your own. This means that pet insurance isn’t a necessity for you, as long as you’re comfortable with canceling it.
Piling up a big savings is a smart financial move, for more reasons than one. If you’ve managed to pad your bank account pretty well, you can probably afford to cancel the insurance policies listed above – why pay for what you don’t need?