Having an emergency fund can protect you from small things like a broken washing machine, a car repair, or a temporary loss of income. A serious injury, however, can make your financial situation worse than it seems. After being hurt in an accident, you’ll have several large expenses arise while your ability to earn income is either diminished or non-existent. Your medical bills, transportation costs, insurance deductibles, and household expenses will continue to pile up in a way that even a padded savings account can’t cover for long.
Injuries Can Be More Costly Than Typical Emergencies
Most people build their emergency funds around needing several months of normal expenses. Experiencing a major injury can create expenses that aren’t covered by that type of budget. For example, an injury that requires a hospital stay can create more than $50,000 in medical debt on top of lost wages for however long it takes to recover.
When you’re dealing with medical insurance, you might end up owing thousands of dollars before your insurance even starts covering your expenses. And even then, your plan might not cover much. If you need physical therapy, prescription medications, follow-up appointments, specialist visits, testing, or medical equipment, your injury-related expenses will be long-term.
Lost Income Creates A Cascade Of Expenses
It’s one thing to accrue medical expenses for treatment. It’s another to lose your income at the same time. If you’re unable to work, you won’t have any income unless you qualify for short-term or long-term disability. Even then, you’ll need to wait a while to receive compensation, and it will only be a small portion of your normal wages. If your spouse takes time off work to care for you, they’ll also lose income. And if you rely on bonuses, you’ll miss out on those while you can’t work.
If another party caused your injury, knowing your options ahead of time can help protect your finances. You might be able to recover compensation through their insurance company, but if they aren’t cooperative or offer you a low payout, you might need to consider filing a lawsuit.
Paid Sick Leave May Not Cover Your Whole Recovery
If your employer provides you with paid sick leave or any type of paid leave that you can use, it’s unlikely to cover the entire duration of your recovery. This can make you feel like you need to return to work before you’ve actually recovered, which can create further injury and/or prolong the healing process.
Health Insurance Won’t Cover Everything
Your health insurance plan might cover some of your costs, but it’s probably not going to cover the majority of your bills. About one-third of Americans with private health insurance carry medical debt of at least $2,000. Coverage is usually limited, and many claims are denied even when valid.
Your Savings Account Can Disappear Fast
Depending on the severity of your injury and how much time you need to take off of work, you could see your savings account disappear fast. All your monthly payments will add up fast, and one unexpected expense, like a car repair, can wipe you out. This is why saving only 3-6 months’ worth of expenses isn’t enough to cover an injury.
Debt Can Keep You Paying For Years
It’s not uncommon for medical bills to turn into long-term debt that takes years to pay off. This debt can include the medical debt directly created by your injury as well as the credit cards or loans you had to use to survive. After calculating interest, medical debt can become unmanageable fast.
The Best Safety Net Involves Multiple Resources
Having an emergency savings account is an important foundation for your financial safety net, but it’s not enough. You also need to make sure you know exactly how much of your income will be replaced by disability if you’re injured and what your health insurance covers. This will help you decide how much money to put away in your emergency fund.
Build Your Savings Account For Long-Term Recovery, Not Just An Emergency
Your emergency fund will be your biggest protection if you’re ever injured in an accident, but it might not be enough to get you through. Instead of putting away just a few months’ worth of bills, pad your emergency fund with enough money to carry you through a long-term medical recovery. If you’re injured unexpectedly, it could disrupt your ability to earn income longer than you think.
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