Life can be full of uncertainties. One minute you have a steady job and income, and the next you could be fighting to make ends meet. This is why it is critical to have a safety pool of funds that can be used when an emergency strikes. Emergency funds provide you with this security in times of unexpected circumstances. The importance of an emergency fund cannot be stated enough.

Here are a few things to know in this regard.

Why should you have an emergency fund?

An emergency fund is a vital component of your financial plan. Storing some money specifically for a contingency can ensure that you do not spend your long term savings or end up in debt over short term expenses. Losing a job or coming face to face with a medical emergency can force you to dig into your savings pool. You may even be compelled to take on a loan or rely on your credit card. All of this can be avoided with an emergency fund in place. Having an emergency fund offers you with increased liquidity and acts as a cushion to fall back on.

How to build an emergency fund?

There are various ways to build an emergency fund. You can follow the steps given below to craft a foolproof emergency fund:

• Set an ideal amount: It is essential to know how much money you need to ward off an emergency. This can be done with efficient financial planning. Keep in mind your gross income, monthly expenses including essentials and loan repayments, and the number of dependent family members to arrive at an amount that can be sufficient for your individual situation. At an average, a sum of six to eight months of your salary can be an adequate sum for an emergency fund.
• Get insurance cover: Getting an insurance cover as an emergency fund, will ensure that you and your loved ones are covered against all odds. The life cover^~ can be of use in your absence and help your family to carry on with their lives. The critical illness or disability benefit can provide you with the necessary protection in case of an illness or medical emergency.
• Invest in the right investments: While you save for a contingency, it is also important for that money to keep growing rather than lie idle. This can be done with mindful investments. Investments in instruments that offer high returns will guarantee that your emergency fund retains its worth and is able to counter the growing inflation. However, it is crucial for you to invest in products that can be easily accessed in times of an urgent need. Investments that come with high penalties on early withdrawals can be detrimental in the long run.

Wealth creation plans by ICICI Prudential Life

ICICI Prudential Life offers many plans that have the potential to maximise your investments along with providing you with the safety of a life cover^~ that can protect your family in the case of an emergency. The ICICI Pru Lifetime Classic Plan¹ is a Unit Linked Life Individual Product that gives the dual benefit of investment and financial protection through a life cover^~. It allows you to invest your money in a combination of debt, equity, and balanced funds. You can choose between four portfolio strategies⁶ as per your preference and make four fund switches in a year for free. In addition to this, loyalty additions³ and wealth boosters⁴ get added to your investment, thereby increasing your overall returns. The plan allows you to choose flexible premium payment modes among single pay, monthly, semi-annually, and annually. The plan also offers tax⁵ benefits under Section 80C⁵ of the Income Tax Act, 1961.

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