Helping clients achieve financial peace of mind through both good times and periods of uncertainty is a core part of financial planning. One of the most effective tools to support this is cash flow modelling. While it is often associated with retirement and investment planning, it also plays a vital role in identifying and addressing protection needs.

When protection planning is considered within the broader context of investments, pensions, and estate planning, it becomes easier to understand how unexpected events might affect your financial position and what steps can be taken to mitigate those risks. Protection should not be seen as a cost or an afterthought, but as an essential part of securing long-term financial wellbeing.

Understanding Cash Flow Modelling
Cash flow modelling involves projecting your future income, expenditure, assets, and liabilities over time. This process creates a visual and dynamic picture of your financial future and can incorporate a range of real-life scenarios, from career changes and market movements to changes in health or inflation.

 Beyond simply answering the question of when you might be able to retire, modelling helps highlight the potential financial impact of unforeseen events, offering a clearer understanding of risks and how to manage them.

Uncovering the Gaps
Protection needs, such as life insurance, critical illness cover, income protection, and family income benefit are often considered in isolation. But when viewed through the lens of cash flow modelling, their importance becomes more tangible.

For example, modelling the impact of a main income earner falling seriously ill or passing away allows families to see the potential financial disruption this could cause. According to Cancer Research UK, approximately half the population will be diagnosed with cancer at some point in their lives. While the emotional and physical toll is often front of mind, the financial strain can also be significant, something that appropriate protection can help to manage.

This kind of modelling allows for scenario-based ‘stress-testing’, making it easier to see where shortfalls in cover may exist. Rather than relying on arbitrary figures, you can take informed steps, whether that’s ensuring mortgage payments can continue, supporting children’s education, or protecting retirement goals. In this way, protection becomes a proactive tool to help safeguard your future.

Rethinking the Role of Protection
There is a common misconception that protection is less relevant for wealthier individuals. However, modelling often reveals the opposite. For example, life cover can be used strategically to help offset future inheritance tax (IHT) liabilities, preserving more of the estate for future generations.

Policies placed in trust can sit outside your estate for IHT purposes and provide a cost-effective way to create liquidity without needing to gift assets during your lifetime. This approach is becoming increasingly relevant following the changes to pension legislation announced in the Autumn 2024 Budget.

From April 2027, unused pension funds from arrangements such as personal pensions and defined contribution schemes will be included in the value of your estate for IHT purposes. In some cases, using part of the pension fund to secure a life policy may offer a practical solution, potentially enhancing the overall outcome for your estate and beneficiaries.

Conclusion
In today’s ever-evolving financial landscape, many individuals are seeking clarity and confidence in their long-term plans. Cash flow modelling provides a valuable framework not only for understanding future financial possibilities but also for identifying where protection plays a critical role.

Planning is not just about growing wealth, it is also about taking sensible, forward-looking steps to help you stay on track, whatever life may bring.

If you’re considering Cash flow modelling, we’re here to help.

Contact us on 0330 320 9280, email info@cravenstreetwealth.com or complete our online enquiry form for practical advice tailored to your own circumstances and needs.

 

The content of this article is for information only and does not constitute formal financial advice. This material is for general information only and does not constitute investment, tax, legal or other forms of advice.

 References to legislation and tax is based on our understanding of United Kingdom law and HM Revenue & Customs practice at the date of publication. These may be subject to change in the future. Tax rates and reliefs may be altered. The value of tax reliefs to the investor depends on their financial circumstances. No guarantees are given regarding the effectiveness of any arrangements entered into on the basis of these comments.

 You should not rely on this information to make, or refrain from making any decisions. Always obtain independent, professional advice for your own particular situation.

Craven Street Financial Planning Limited is authorised and regulated by the Financial Conduct Authority (FCA). The FCA does not regulate tax advice.