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She thought saving her windfall was smart. Her brother saw a blind spot
Michael KurkoOctober 7, 2025 at 3:40 AM
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She thought saving her windfall was smart. Her brother saw a blind spot (the_burtons via Getty Images)
I was talking to a good friend recently about what to do with a small amount of money she inherited from a distant cousin. She's a teacher who's never had more than a few thousand dollars stashed away for an emergency. Setting aside three months of expenses in a high-yield account felt like a no-brainer.
Her brother disagreed: He said it would be better to invest those funds in disability insurance. His reasoning? Nobody expects to get sick, he said, and if you were to get sick, an emergency fund wouldn't help you nearly as much.
So, here's the question: Who's right — should she save up for an emergency or spend the money on insurance premiums?
"Ideally, you should have both," says Harold Wenger Jr., wealth manager at advisory firm Kingsview Partners, "emergency funds to protect yourself from short-term curveballs, and disability insurance for long-term financial safety if illness or injury puts you out of work."
The case for emergency savings
A healthy emergency fund can cover your daily expenses for several months if you lose your job or face a major loss of income. How much you need depends on your household — typically six months of expenses if you're single or your family's sole breadwinner, and at least three months of expenses if you're a dual-income household
The advantage? Your emergency fund is there when you need it — no red tape. No monthly premium, no claims to submit, no waiting for approvals. When unexpected expenses hit — a medical emergency or urgent car repair — you can dip into your fund instead of piling up debt.
Expert tip: Park your money in a high-yield savings account or short-term CD, where your interest can compound more quickly. Look for rates that at least match inflation to avoid losing too much value while it sits at the bank.
🔍 Read more: 'You call that an emergency fund?' 5 money basics most adults are failing right now
How disability insurance protects your emergency fund
Insurance that protects against disasters, like disability coverage, can help you avoid draining your emergency fund if you have an accident or illness that keeps you away from work.
"An emergency fund of $10,000 might seem strong until you break it down into four months of expenses at $3,300 a month and see it nearly gone," says Michael Benoit, an insurance specialist and founder of a San Diego–based insurance agency. "Pairing that fund with disability insurance would make it a bridge and not the lifeline, allowing you to recover without emptying everything you earned."
Most policies replace 40% to 70% of your income while you're unable to work — enough to keep you afloat without burning through your savings.
Why you can't count on government disability
Social Security Disability Insurance (SSDI) is available, but it's not a safety net you can count on. For one, qualifying is notoriously difficult. (I watched a close friend die before her SSDI application was approved.)
"SSDI is notoriously difficult to qualify for, often requires a long waiting period, and only pays benefits if your disability is expected to last at least a year or result in death," says Matt Moore, a New Jersey–based financial advisor. and a senior manager at the American Institute of Certified Public Accounts.
Even if you do qualify, SSDI comes with restrictions on your assets that might make it difficult to survive on. "The average monthly benefit is modest — typically under $1,500 — which is rarely enough to cover living expenses, let alone maintain savings goals or family obligations," adds Moore.
That payment wouldn't cover half a month's rent for most apartments in the city where I live, whereas private disability insurance provides breathing room government programs can't provide.
Short term vs. long term: Which disability insurance do you need?
Disability insurance comes in two forms: short term and long term. Short-term policies cover you for a few months and are often available through your employer. Long-term policies protect you for years — sometimes two decades or more — and typically requires shopping for coverage yourself.
The best time to buy disability insurance is when you're young and healthy. "This is the least expensive time to purchase coverage," says Jeff Smith, a licensed insurance agent and agency owner since 2002. "A good rule is that typically you pay between 1% to 3% of your annual income — so for a $100,000 earner at 35, you could expect to pay between $83 and up to $247 per month."
"If your employer offers short-term disability at low or no cost, take it," says Raoul P.E. Schweicher, managing partner at MSAdvisory. "If coverage costs you real money, compare the premium to the dollars it would take to fund three months of essential expenses."
If you're your family's sole source of income, life insurance is also worth considering. It can help if a short-term illness were to become a permanent disability. "For that I would suggest a long-term disability policy, a chronic illness rider on a life insurance policy, a critical illness policy or some combination of all three," says Smith.
🔍 Read more: Retirees warn: Don't make these 9 Social Security mistakes
The verdict: Emergency savings or disability insurance first?
"If I had to give one piece of advice to someone weighing extra savings or short-term disability, I'd recommend first establishing emergency funds," says finance expert Joseph Keshi. "Putting aside three or more months' worth of expenses seems ideally the minimum, so the next step is going for disability insurance, which offers that extra layer of protection."
Keep this in mind: Even with long-term disability insurance, you'll typically need to cover several months of expenses before benefits kick in. Most people who get sick or injured still need emergency savings, regardless of coverage.
That said, the ideal approach isn't choosing one or the other. "The best safeguard is not an 'either or' decision but a structure where savings handle the first shock and insurance preserves them from being consumed," says Benoit.
"If you had an ATM in your garage that was your sole source of income and guaranteed to print enough money for you to live on until the day you retired, wouldn't you buy insurance for it?" asks Josh Radman, a fiduciary and certified financial planner at Denver-based Presidio Advisors. "Why do we hesitate to insurance our ability to earn an income over the next however-many years?"
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About the writer
Anna Serio-Ali is a trusted lending expert who specializes in consumer and business financing. A former certified commercial loan officer, Anna's written and edited more than a thousand articles to help Americans strengthen their financial literacy. Her expertise and analysis on personal, student, business and car loans has been featured in Business Insider, CNBC, Nasdaq and ValueWalk, among other publications, and she earned an Expert Contributor in Finance badge from review site Best Company in 2020.
Article edited by Kelly Suzan Waggoner
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