Insurance & Emergency Funds: Closing the Gaps Before Year-End
Key takeaways:
Insurance and emergency savings both work to protect households from costly surprises. Reviewing them together helps identify where a family is most financially exposed and how long their savings could realistically last.
Nicole thought of herself as someone who had her financial bases covered. She had health insurance through her employer, a 401(k) she contributed to consistently, and a savings account she rarely touched. It was not until her car needed an unexpected $2,400 transmission repair that Nicole, a 40-year-old dental hygienist, discovered how thin her actual safety net was. There was only half of the needed amount in her savings account, and she ended up putting the remainder on a credit card, something she had always assumed she would never need to do.
Nicole’s experience reflects a gap that shows up across a wide range of households, not just those with obviously tight budgets. Having some savings and some insurance coverage is not the same as having enough of either. The two are rarely checked together, even though they are meant to work as part of a bigger safety net system, protecting against the same category of financial shock.
The State of Emergency Savings
The numbers on emergency savings are more sobering than most people expect. A 2025 survey from Credible found that 37% of Americans have no emergency fund at all, and 1 in 5 said they could not cover a $500 emergency expense today without borrowing.
A 2025 survey from New York Life found that 43% of adults feel less financially secure than the year before, and 67% report carrying some form of debt, most commonly credit card debt.
The standard guidance of setting aside 3 to 6 months of living expenses remains a reasonable target for most households. For households starting from zero, a more useful goal is often a smaller, immediately achievable milestone, such as one month of expenses, rather than an intimidating multi-month target that feels out of reach and is postponed indefinitely.
Insurance Coverage Deserves the Same Scrutiny
An emergency fund is designed to absorb small to medium shocks. Insurance is designed to absorb the larger ones that fall under specific conditions.
It is worth checking whether insurance coverage has kept pace with a household’s current situation. Health insurance deductibles and out-of-pocket maximums should be reviewed annually, particularly during open enrollment, since a plan that made sense with one income level or family size may no longer make sense after a change in either.
Why These Two Categories Belong in the Same Review
Emergency savings and insurance coverage are often reviewed separately, if at all, but they address the same underlying problem from two different angles.
A well-funded emergency account can absorb a car repair or a short gap in income without disrupting the rest of a household’s finances. Insurance exists for losses that are too large or too prolonged for savings alone to reasonably cover, such as a serious illness, a disability lasting months or years, or a death. Reviewing them together, rather than as two unrelated line items, gives a more accurate picture of where a household is genuinely exposed.
“The reality is that cost emergencies happen, and if you’re not prepared properly, it could disrupt or delay other long-term financial goals,” says Shawn Steadman, Vice President of Investments at David Lerner Associates, Inc.
“Having a safety net that includes both updated insurance and an intentional emergency savings account can not only be reassuring to have, but also a key part of financial planning.”
Building a Realistic Plan
Finding a gap can start with two simple comparisons. For emergency savings, add up essential monthly costs, such as housing, utilities, groceries, insurance premiums, and minimum debt payments. Then divide the savings that could be reached quickly, without penalties or selling investments, by that monthly total. The result can give an idea of how many months of expenses a household can actually cover
For insurance, a useful test is whether current emergency savings could cover the health plan’s out-of-pocket maximum in a bad year. Beyond health coverage, it is worth confirming whether life insurance would replace income and cover debts for anyone who depends on it. It is also worth checking whether disability coverage exists at all and what share of income it would replace, since many employer plans cover only part of a paycheck.
Bridging the Gaps
For households discovering a shortfall in either category, the fix does not need to happen all at once. Automating a modest, consistent transfer into a dedicated emergency savings account, separate from general checking, tends to outperform sporadic large deposits that depend on remembering to make them. On the insurance side, a conversation with a financial professional about current health, life, and disability coverage in relation to income and family circumstances can identify the most urgent gap first, rather than trying to address every category simultaneously.
What Nicole Did Next
After her transmission repair, Nicole set up an automatic transfer into a dedicated emergency savings account and, during her employer’s next open enrollment period, added a voluntary short-term disability policy she had previously skipped because she assumed her employer coverage was more comprehensive than it was. Neither change was dramatic on its own. Together, they meant the next unexpected expense would not automatically become a credit card balance.
Material contained in this article is provided for information purposes only. It is not intended to be used in connection with the evaluation of any investments offered by David Lerner Associates, Inc. This material does not constitute an offer or recommendation to buy or sell securities and should not be considered in connection with the purchase or sale of securities. These materials are provided for general information and educational purposes, based on publicly available information from sources believed to be reliable. We cannot assure the accuracy or completeness of these materials. The information in these materials may change at any time and without notice. The subject of this article is fictitious and created for illustrative purposes only. It is based on events of a similar nature and should not be interpreted as a direct depiction of any specific individual, organization, or incident. Any resemblance to actual persons, living or deceased, or actual events is purely coincidental.