DEFINITION of Cash Flow Plans

A cash flow plan, in insurance, is a plan which allows policyholders to use their own cash flow to finance their insurance premiums. It can also refer to an insurance company's assessment of a company's income streams and expenses, along with a plan to coordinate the payment of insurance premiums, allowing the business to earn as much interest as possible by simply paying the premiums in installments.

BREAKING DOWN Cash Flow Plans

Cash flow plans can provide financing for both policyholders and insurance companies, by helping them make better use of their cash. Policyholders can earn more interest on cash reserves, and cash flow can even be generated by the policy itself, as commonly occurs with life insurance policies that have investing components. Insurers may get paid in installments, but their collection rate may go up, because smaller, regular payments are more affordable.

Good cash flow management is key to ensuring any business runs smoothly. By matching the payment of expenses to projected incoming cash, they can use working capital more efficiently, by making payments as late as possible. Cash flow plans can help the business to earn interest on cash reserves, and maintain a liquidity cushion, for unexpected expenses. They can also indicate whether operating cash flow is enough to make capital expenditures, or whether more capital will need to be raised.