Wednesday, June 10, 2009

Unexpected Medical Expenses - Another Good Reason for an Emergency Fund

Medical bills prompt more than 60% of U.S. bankruptcies reports that 62.1% of bankruptcies in 2005 had over $5000 or 10% of pre-tax income in medical bills, mortgaged their home to pay medical bills or lost significant income due to an illness. The article cautions that the data only shows that medical bills were part of the reason for insolvency, not if they were the major cause. However, the article does point out difficulty with medical bills is something that many families with financial burdens may experience. In addition, the report was done prior the the current recession, which has likely caused more people to have financial difficulty. Surprisingly, 78% of the medically bankrupted had health insurance.

Typically, I have have kept an emergency fund for issues such as losing a job, major auto repair, or major home repair. The fact that most of the people has health insurance suggests to me that unexpected medical expenses is another good reason to have an emergency fund that can last at least six months. Of course, there are health care expenses that would surpass a six month emergency fund. However, for us, a six month emergency fund would be sufficient to minimize the financial burden of most unexpected medical expenses.

For more on The Practice of Personal Finance, check back every Wednesday for a new segment.

This is not financial, saving or health care advice. Please consult a professional advisor.

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