photo credit: alancleaver_2000
Your emergency savings is set aside to be used for NOTHING but emergencies. Right? Right! But that very fund (3-6 months of income) can also be used to help save on insurance premiums.
Think of it this way: because the purpose of insurance is to transfer risk from us to the insurance company, having a good emergency fund allows you to assume a bit more risk by raising your deductibles and therefore lowering your premiums. Of course you have to run the numbers to see if this is a good idea for you. I asked my local insurance agent for some generic quotes to help me better understand how higher deductibles would affect auto, homeowners and health insurance. This is what I learned:
Auto Insurance
Raising your auto collision deductible from $100 to $1000 will normally save you $500/year on premiums. This is good news if you have that emergency fund in place because you would only need to go accident free for about two years to justify the higher deductible. Of course if you are accident prone, you may be better off with the higher deductible and higher premium.
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