Legal Definitions - proceeds and avails

Proceeds and Avails

The term "proceeds and avails" refers to the total financial value and benefits associated with a life insurance policy. This includes any cash value that has accumulated over time within the policy, the amount that can be received if the policy is surrendered early (its cash surrender value), and the full benefit amount paid out upon the policy's maturity or the death of the insured person. Essentially, it encompasses all the money and financial worth that a life insurance policy can provide, whether accessed during the insured's lifetime or paid out later.

Here are some examples to illustrate how "proceeds and avails" applies:

• Bankruptcy Protection: Imagine a situation where Robert is facing severe financial difficulties and is considering filing for bankruptcy. He owns a whole life insurance policy that he purchased many years ago, which has built up a significant cash value. In many jurisdictions, the "proceeds and avails" of a life insurance policy—meaning its accumulated cash value and the future death benefit—are protected from creditors during bankruptcy proceedings.

  This illustrates the term because it highlights that the entire financial worth of the policy, both its current accessible cash value and its future payout, is considered when determining what assets are shielded from debt collection.

• Estate Planning: Consider Eleanor, who is meticulously planning her estate to ensure her assets are distributed precisely as she wishes after her death. She holds a substantial universal life insurance policy with a significant death benefit and a growing cash value. When Eleanor reviews her estate plan, she includes the "proceeds and avails" of this policy as a key component.

  This example demonstrates "proceeds and avails" by showing that Eleanor is accounting for the full financial scope of her policy: both the cash value she could potentially access during her lifetime and the large death benefit that will be paid to her beneficiaries, which she intends to use for family support and potential estate taxes.

• Divorce Settlement: Suppose Michael and Sarah are going through a divorce, and as part of their asset division, they need to determine the value of all marital property. This includes a whole life insurance policy Michael purchased during their marriage, which has accumulated a considerable cash surrender value.

  In this context, the "proceeds and avails" of Michael's life insurance policy primarily refer to its current cash surrender value. This is the amount of money they could receive if they chose to cancel the policy immediately. This cash value is treated as a marital asset and is factored into the equitable distribution of property during their divorce settlement, even though the full death benefit is not yet payable.