Saving to Survive the Unthinkable

The following is a guest post by my friend Chris (@yegct) on the importance of having an Emergency Fund for something you never want to need an Emergency Fund for. 

Emergency funds are important, right? I mean, everyone says so. The rule is always six months of essential living expenses, saved up in cash and easily accessible.

But, come on.

You have real financial responsibilities that are a hell of a lot more urgent. You have to pay off your credit card debt, maybe get ahead on your mortgage. You still have those student loans, for crying out loud. Besides, you have life insurance (term life, not cash-value insurance) if the worst happens. You’re covered, right? I thought I was.

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I’m Chris Thompson. That was me in 2011, all financial bases covered. I was married. I had a mortgage, life insurance, a good job, plus just a little bit saved up in case the hot water tank ruptured or I had to replace my car’s tires. After all, I wanted to be prepared. I was financially responsible. I made sure everything was taken care of. What else could possibly happen? And then my life unraveled.

I lost my wife

On the morning of April 20, 2011, the police knocked on my door. My wife, Ailish O’Connor, the love of my life, had been struck and killed as she crossed the street on her way to work. She had just turned 28. Suddenly, everything changed. My life fell apart.

The financial implications of the unexpected death of a loved one are a cruel consequence on top of an already devastating situation. When someone close to you dies, the last thing you want to think about is money. However, death comes with plenty of bills that demand your immediate attention.

The unexpected financial burden of unexpected death

Do you know most funeral homes require a 50% down-payment the day you book the funeral, with the rest due in 30 days? I didn’t until I had to pay it. MoneySense estimated the average cost of a funeral to be $6300, though this doesn’t cover such “extras” as a burial plot or a headstone.

In my case, the total came to roughly $16,000, plus another few thousand for the headstone a few months later. I’m sure I could have saved money by shopping around, but the sudden and unexpected death of your spouse leaves you incapable of making basic decisions, let alone comparison shopping for funeral deals.

These bills are exceptionally cruel when you’re young. Someone blowing out the candles on their 97th birthday cake might have an inkling that they should be saving for a casket and headstone, but it rarely crosses the mind of a thirty-something. These were expenses I’d never dreamt I’d have to worry about at this age, and now they were coming due.

Oh, and your mortgage? Utilities? Car payments? Those expenses are still coming out every month, and you’re covering all of them by yourself now. You can’t split those costs with your spouse anymore.

Waiting for insurance and death benefits

So, that’s $8000 tomorrow and another $8000 within a month. Plus few more thousand for a headstone a few months after that. The bills kept coming. And most of your living expenses just doubled, while you consider taking time away from work to grieve. But hey, at least you have life insurance, right? And surely the CPP Death Benefit will help out?

No.

At least not for months and months. See, first, there’s an autopsy. That takes roughly three months but can take longer if you are hit by another random incident of bad luck, like I was with a Canada Post strike. In order to claim benefits, you need a copy of the death certificate, the medical examiner’s report, your spouse’s birth certificate, plus your marriage certificate to prove you’re the spouse. And any number of other additional pieces of documentation.

In Alberta, the Wills and Succession Act determines how the estate is divided, with or without a will. Best case scenario: it’ll be months before life insurance or mortgage insurance kicks in. Worst case scenario, it could be years. Either way, you’ll have to cover the costs in the meantime.

How to financially survive the worst

So how do you cover the funeral expenses and the suddenly inflated living costs?

1. Raid whatever emergency fund you have
2. Raid your TFSA
3. Borrow from family and friends
4. Take out a line of credit from your bank
5. Panic, then ask for help

If you have an emergency fund, use it. A good emergency fund lets you access the money immediately. That means it’s imperative you keep your emergency fund in cash that can be withdrawn without hassle.

Next, hit up your tax-free savings account. A TFSA is a good place to park your emergency fund anyway and you should probably be contributing to your TFSA instead of your RRSP, at least until you hit your contribution limit. Any money you withdraw from your TFSA this year, you can replace next year (but not before!). Once your insurance kicks in and you receive your payout, you can use it to return your savings to your TFSA.

If you are lucky, your family and friends may be willing to help out by lending you money. This is great, but make sure they are aware how long it will take for you to repay the loan. Now is not the time to add additional stress to your life, so make sure repayment terms are generous or contingent on receiving your life insurance payout.

There’s a good chance your bank has a process in place to help you out, too. They understand people frequently need to take a line of credit for a few months. Both banks I dealt with provided information sheets explaining what options I had available and what services I could turn to.

If that still isn’t enough, it’s time to call for help. You can tap out your credit cards or do an emergency withdrawal from your RRSPs, but these are very costly options. You are emotionally drained and not in a position to make sound financial decisions. Grab a friend, make it clear you are not asking them for money, then explain your situation and ask for advice. People are eager to help and just want to be asked. Sometimes what you need most is someone else’s clear perspective of what to do next.

Without my emergency fund, my TFSA, and my family and friends, I wouldn’t have survived 2011. I know first-hand the importance of having an Emergency Fund to cover the unimaginable scenario. Money’s the last thing you’ll be able to deal with when the worst happens, so the best thing you can do for yourself is to think about it now.