Why Spending Money on Life Insurance Trumped Building Up the Emergency Fund

Below is a guest post from Super Frugalette where she blogs about being elegant in a fiscally contentious way.

Everyone has financial concerns…job loss, car repairs, health insurance, travel insurance, etc. Depending on what stage you are in your life these cares are different. However the proverbial “emergency fund” is always on the lips of all of those who want to be financially “set”. However, for my family, the emergency fund has taken a back seat to life insurance.

I am a firm believer in the emergency fund. Things happen. Cars break down. Jobs are lost. Airline tickets are needed to attend funerals. (Tickets for weddings come out of the budget…you have forewarning for those occasions.) However, usually in the direst of circumstances, you can get “by” even if your emergency fund is meager. There is an unemployment check. Food stamps are available. You can even sell your possessions. You could probably stay with relatives for a short time if necessary.

Yet, if you have a small emergency fund, say $5,000. Having another $1,000 in that fund is not going to make a huge difference. It is doubtful that $1,000 be the difference between hanging onto the house or having it foreclosed upon.  You are not losing sleep over that $1,000 either.  Thus, the extra $1,000 in the emergency fund does not really affect your life.

My Story

Within a couple of month after arriving in Wisconsin, we saved the $5,000 for the “emergency fund”.  We were content to leave that amount as is, and then acquire a significant amount of life insurance. I knew that our family could recover from a material loss but we would never be able to recover financially if either my husband or I passed away or if both of us passed together since we had small children.

In less than three years my husband and I added three sons to our family. It was not specifically my concern that we had three children that prompted us to have copious amounts of life insurance. There are men and women who lose spouses and raise children alone. Additionally we know of many couples that desire large families and would be willing to raise our children if we passed.  My chief concern was that families wanting to adopt our children would have to pass because they would be unable to absorb the financial commitment, namely the medical expenses of our second child.

Our second child had a traumatic birth and as a result has severe brain damage. The severity of his brain damage causes him to be a quadriplegic.  We learned within a couple of month of his birth that although we planned on having two parents working for a couple of years, it would not be possible with our son’s medical issues.  He has frequent doctors appointments, hospital stays, and his level of care cannot be achieved in a daycare setting.

Hence, we realized that if I passed away, my husband could not hold a job given all of our son’s health issues without significant help such as a full time nanny and then additional aids to work overnight if necessary. If my husband passed away, it would make more sense that continued my role as a stay at home mother since I have been out of the workforce the income I could generate would rival the amount needed to spend on a nanny and additional help. We needed to ensure that I had enough financial resources to maintain our current level of care of not only for our disabled son, but also our two other children.

It also occurred to us that in the event that both of us pass, an adoptive family would need strong resources to enable them to adopt all three children. As part of our will, we have appointed a consultant to help any prospective family understand the ongoing and future financial costs of raising a severely disabled child. We had to consider such things as modified cars that accommodate wheel chairs and remodeling a home to make it handicapped accessible when determining an appropriate amount of life insurance to provide for these needs.

We pay a over $1,000 a year for life insurance. Sometimes I am concerned that $5,000 will not be enough to cover a major financial catastrophe and acknowledge that we could have a larger emergency fund if we were not paying so much for life insurance. Yet, I no longer worry about my children in the event that I die unexpectedly.  Investing in life insurance before having a large emergency fund has given me more peace of mind than I anticipated.

Do you have life insurance? Has my story persuaded you to consider it or increase it?

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This was a guest post from Super Frugalette, where she blogs about being elegant in a fiscally contentious way. You can also follow Super Frugalette via Twitter and RSS.