The 21st century is riddled with mystery, uncertainty, and variables that you couldn’t just keep note of all the time. There are a lot of things that happen day in and day out; tragedies, calamities, recessions, and even political turmoil. It’s very hard to get a sure, stable, and secure way to essentially make it clear that you’ll be fine throughout life. Because of that, people have found ways to safeguard themselves from such unexpected events. It has become commonplace in modern society to always have a buffer of funds that you can access once something unfortunate has happened. Tapping into different things in order to keep afloat is usually observed as well, such as relying on a Chase business account to purchase a loan and keep your business afloat amidst an unforeseen global pandemic.
Others, specifically individuals and families on the microscale, have also found ways to safeguard themselves. Two of the main ways they protect themselves and their loved ones are through emergency funds and insurance. Although it may seem like the two don’t have obvious differences at first glance, they actually differ in some key aspects. However, it is important to note that both of these financial tools should be utilized by the individual, family, or you, who is reading this article. Making sure that you have both emergency funds and insurance will give you a sense of security and stability.
What is insurance?
Essentially, insurance is the act of keeping money aside that would be used later in unforeseen events. For example, you avail from a car insurance company and pay them a small amount of money on a monthly basis. In the event that you get into a car crash, you could tap the car insurance company to pay for the damages caused by accident. Instead of shelling out a large sum of money to repair your car, the insurance company will take care of the expenses. This leads to a more secure and confident lifestyle that wouldn’t have you freezing in your tracks for any sign of trouble.
What are emergency funds?
Emergency funds also function the same way as insurance. In the most basic understanding of the term, you set aside money in order for you to have something to be used in later, unforeseen events. You save resources that would cover about six months’ worth of expenses so that you have a buffer that you could fall back on whenever something unexpected happens.
What’s the difference between the two?
Now that you’ve read the definition of the two, it may still seem like there is no difference between them. However, there are some key points, and you should take note of them. For one, emergency funds are done by yourself. You save the money yourself, and you’re the one who controls how much you should set aside for emergency funds. Insurance, on the other hand, is usually done by binding a legal contract with an insurance company. They are the ones who set the terms for how much you’d pay on a periodic basis, and they are the ones who will cover the expenses whenever an accident happens.
Another difference is that an emergency fund could be very broad, while insurance is highly specific. If you’ve read earlier, you might have noticed that there are very specific insurance companies. Property insurance, car insurance, and even health insurance. They specialize in specific circumstances by which they could only be tapped for their specific purposes. This is the reason why you should always have emergency funds and insurance for a very safe and secure lifestyle. Although they may overlap, you’d always have a better buffer for emergencies if you have the two.
