The Emergency Fund You Didn’t Even Know You Had
I have had clients start phone calls with that line, or something similar, at least twice a day for the past three weeks. Thankfully, most of them were smart enough to take my advice and set aside some emergency money, those that did not are wishing they had and are ready to push the panic button. But not all emergency funds are created equal and so yesterday I took to YouTube to discuss the most overlooked source of emergency cash that a lot of people have at their disposal; check it out here.
Once you get past my riff on breakfast nutrition I get into the meat and potatoes of the discussion around the 1:55 mark, hang in there, its worth it. Or you could just pause the playback while it downloads and skip ahead if you really want to.
For those of you who do not have a Whole-Life Life Insurance policy, I want to take a few minutes today to ask you one simple question. Why not?
I get that some people think Life Insurance is a waste of money. Why pay for something that you will not reap the benefit from directly? While I understand the sentiment, I have to say, dying without a plan in place to provide for your family and pay off your debts is just rude. If you are independently wealthy, that’s one thing, but my mother taught me never to expect anyone to clean up my messes for me. Even wealthy people have Life Insurance because Life Insurance, when built properly can be the final broom that comes along and sweeps your life into a tidy little pile and makes things easy to dispose of.
Not that I am saying you’re dirt that you family is just going to toss away. Let’s assume you love your family, and in turn they don’t think you’re dirt, let’s also assume you’re not independently wealthy and you’re not rude.
You probably have some Life Insurance already. Most employers provide at least a small amount of income replacement for your family to help them through a difficult time as part of your health plan. That’s nice but it’s not generally going to be enough to clear your debts and provide for your family long term. In addition to your employer sponsored plan most people will purchase some term Life Insurance to cover off major debts and provide income for their families for a few years. This is all good stuff but it’s not Whole-Life Life Insurance and it’s not going to provide you with any emergency money while you are living.
While term coverage resets at a higher premium at the end of a specific number of years, a Whole-Life Life Insurance policy is designed to give you coverage for one guaranteed premium amount throughout your entire life. It also provides you with the opportunity to participate in the financial returns of the insurance company and grow a cash surrender value which you can access while you are living. Term policies only payout once on death.
In the world of COVID-19 it’s the cash surrender value in Whole-Life policies that many of my clients are finding can form the basis of an emergency fund. You don’t need to die to gain access to this cash value, you can instead surrender some of the death benefit or take a loan from insurance company to bridge through a difficult time. The beauty of this plan is that you don’t have to submit to a credit check, it’s technically your own money, and you don’t have to commit to a specific time frame to pay any of it back. If you die while the loan is still outstanding the insurance company will just deduct whatever is left from the final death benefit and pay your heirs the rest.
This is not all sunshine and roses. The CRA may consider some of the advanced funds as income and expect you to pay tax on them and the insurance company may charge you interest if you take it as a loan. But if your other sources of income have taken a huge hit paying some tax is not a bad thing and the interest rate is about a third of that charged by most credit cards. Win-win.
Experts agree that everyone should have about 3 months of expenses in an emergency fund. Most people find this hard to do but by paying a premium of say $50 a month you can build up a cash value well in excess of that number over time. In the past week I have advanced an average of $6,500 from Whole-Life Life Insurance policies to everyone of my client’s who have qualified. Not bad for a commitment of $50 per month and a whole lot more than the government is offering through some of their emergency financing programs.
So, if you have a Whole-Life Life Insurance policy you might have a significant emergency fund at your disposal. If you don’t have a Whole-Life Life Insurance policy now might be the perfect time to check with your financial advisor and put something in place for the next “once in a life-time” financial emergency like we are living through right now.
Stay healthy and safe, and stay home if you can.