Emergency Fund
What Does Emergency Fund Mean?
An emergency fund, in the context of insurance, refers to a feature in permanent life insurance policies that allows the insured to withdraw cash to cover unexpected expenses or other monetary needs. Additionally, a life insurance policy can serve as a last-resort emergency fund, providing financial support when needed.
Insuranceopedia Explains Emergency Fund
Certain types of life insurance policies enable the insured to access immediate cash when needed, even while they are still alive. For instance, permanent life insurance allows the insured to borrow against the cash value of the policy. Not every policy type builds cash value at the same rate, though, so the amount available in an emergency depends on which type of life insurance policy generates immediate cash value. Another option for obtaining emergency cash is to cancel the policy and withdraw its cash value. Additionally, the insured can sell their permanent life insurance policy to receive funds for emergencies. Unexpected life events where an emergency fund would be beneficial include sudden unemployment, unexpected house or car repairs, and medical expenses. Anyone considering this approach should compare permanent life insurance options carefully, since policy fees and surrender charges will reduce the cash you actually receive.
