Should You Use Your Tax Refund to Buy Insurance?

As of March 29, the average tax refund issued during the 2024 filing season was $3,050. And since the season isn't quite over, that number still has the potential to wiggle a bit.

If you filed your taxes already, you may be anticipating a nice refund check any day now. And if so, it's important to put that money to good use.

But should you use your tax refund to buy insurance? It depends.

First, take care of your emergency fund

No matter your situation, your primary financial priority should be to have a fully loaded emergency fund. If you don't have enough money in your savings to cover a minimum of three full months of essential expenses, then any funds you receive in tax refund form should really go directly into the bank.

Without emergency savings, you might quickly end up with costly debt on your hands should something go wrong in your life, whether it's an issue with your car, your home, or your job. So if you're sitting on, say, a savings balance of $700 and your refund comes in at $3,000, you should immediately aim to bring that balance up to $3,700.

Consider insurance if you're set with emergency savings

Recent data from Assurance finds that 29% of tax refund recipients are considering using that money to pay for insurance. So if you're in a good place with emergency savings, you may want to allocate your tax refund to insurance, too.

Your primary focus there should be medical insurance if you don't have a policy already. Without health coverage, you could face astronomical costs in the event you're injured and need hospital care. Plus, you never know when you might fall ill and need a series of expensive diagnostic tests. Without insurance, you may be looking at high costs to get the care you need. Or, worse yet, you might skimp on the care you need, compromising your health.

If you're set on health insurance, there may be other types of insurance it makes sense to use your tax refund for. If you have people in your life who depend on you financially, for example, then life insurance could offer them a world of protection -- and give you peace of mind. And if you only have a small life insurance policy in place already, you may want to use your refund to buy more insurance so your family is adequately covered.

Meanwhile, if you have pets at home, another good use of your tax refund may be to buy pet insurance. Without it, you could end up facing exorbitantly high bills in the event that your pet gets injured or sick.

Don't just spend your tax refund

It's easy to look at a tax refund as found money. But actually, it's money you earned that the IRS withheld from you instead of letting you keep, so now it's giving it back.

It's important to use that money to address your financial needs. That could mean using your refund to build yourself a safety net in the form of emergency savings. But if you're all set on emergency cash reserves, spending your refund on insurance could be a great way to make the most of it.