Can a Power of Attorney Change a Life Insurance Beneficiary?

Powers of attorney (POAs) are instrumental in estate planning. They allow life insurance policyholders to designate other parties to act on their behalf, such as purchasing coverage and paying premiums. Someone with power of attorney could change the beneficiary on a life insurance policy, subject to legal exceptions. In this guide, you’ll learn the relevant aspects of POA and the circumstances in which a POA holder can alter life insurance policies.

What Is a Power of Attorney?

A power of attorney is a legal document that authorizes a person to act on another’s behalf. The person creating the POA is called the principal, whereas the authorized person is called the agent. The principal confers legal authority to the agent, enabling the latter to perform certain acts defined in the POA document. The scope of POAs differs from case to case and must be strictly followed.

Different types of powers of attorney include:

• General: General POAs provide broad powers to agents to handle financial and legal matters on behalf of the principal. For example, the principal may instruct the agent to manage or deal with specified assets with minimal limitations. It typically takes effect upon execution and ends when the principal revokes it or dies.
• Limited: Limited POAs grant agents the authority to perform specific activities on behalf of the principal. There are defined boundaries concerning what the agent can and cannot do. Contravening the instruction can result in personal liability or an invalid transaction, depending on the facts of the case.
• Durable: Durable POAs remain effective even if the principal encounters physical or mental disability. The POA can grant the agent general or limited durable powers. The agent may lose authority when the principal dies or if the principal revokes the POA, assuming they have the mental capacity to do so.
• Springing: Springing POAs come into effect upon the occurrence of a specific event or condition. For example, the POA may stipulate the agent must manage the principal’s financial affairs if the principal encounters physical disability. Until then, the agent has no authority to act on behalf of the principal.

What Is the Difference Between a General and a Limited Power of Attorney?

The primary difference between general and limited POAs is the scope of authority granted to the agent. While the agent holding a general POA has broad powers to act for the principal in various matters, agents holding limited POAs have restricted powers. General POAs are typically more flexible in terms of authority, while limited POAs have a narrower scope. Limited POAs are ideal for temporary needs.

How a Power of Attorney Is Used to Manage Life Insurance

POAs are helpful in estate planning, especially for managing life insurance accounts. The document provides details about the agent, along with instructions on what they can do. For example, the POA may authorize the agent to:

1. Purchase life insurance coverage
2. Pay premiums
3. Renew the coverage upon expiration
4. Create a trust to manage the life insurance proceeds for minor beneficiaries

The agent has a fiduciary duty to act in good faith and the principal’s best interests. A breach of the fiduciary duty can result in an agent incurring liability for their unlawful acts. For example, the beneficiary may sue for compensation or seek other remedies. In other instances, a transaction the agent performs may be deemed void.

Can a POA Change the Beneficiary on a Life Insurance Policy?

In general, a POA authorizes the agent to change a life insurance beneficiary, subject to legal exceptions. Remember, POAs can grant general or limited powers, depending on the principal’s wishes. Once executed, the agent can legally perform the activities stipulated in the document. Therefore, it’s crucial to draft POAs carefully to reflect your true intentions. Beneficiaries can and should review POAs thoroughly and assess the applicable laws to determine their rights.

There are many instances where parties dispute because of unclear stipulations in POAs. Some principals use templates with catch-all clauses without tailoring them to suit their circumstances. These generic documents may empower the agent to do things the principal would not have wanted them to do, like altering beneficiaries to a life insurance policy.

The power of agents to change life insurance beneficiaries is handy when the original beneficiary passes away. In such an event, the agent may select new beneficiaries to prevent the funds from falling into the insured’s estate, which would require probating to access. It’s always essential for the agent to act in good faith and in the principal’s best interest when making such decisions.

The agent may change the beneficiary by writing a letter to the insurance company. The letter must detail the agent’s authority to request the change and explain why such an alteration is necessary. The insurance company will typically demand a copy of the POA and send the relevant forms to complete. The agent must return the completed forms to the insurance provider to start the process.

Limitations on Power of Attorney Changing Life Insurance Beneficiaries

An agent can only change the life insurance beneficiary if the POA authorizes them. Additionally, there may be limitations if the policy has irrevocable beneficiaries. Irrevocable beneficiaries are those designated to receive the life insurance proceeds, like in the case of payable-on-death and joint accounts. Such individuals may be required to sign a document waiving their rights before the change can be effected. Finally, the agent may not change the life insurance beneficiary after the principal passes away since the death of the principal terminates the POA.

Can a POA Also Be a Beneficiary?

A principal may name a person who holds a POA to also be a beneficiary on a life insurance policy. However, an agent who holds a POA may designate themselves as a beneficiary of the principal’s life insurance policy only if the POA document explicitly gives them express authority to do so. For example, policyholders can create a POA authorizing their spouse or children to name themselves beneficiaries.

Importance of Legal Advice on Power of Attorney and Life Insurance Policies

Legal assistance is crucial in matters related to POAs and life insurance policies for the following reasons:

• Understanding the legal implications: Knowledgeable attorneys can help you understand the legal consequences of POA and the various types available, including their limitations and the responsibilities of agents.
• Draft tailored POAs: Attorneys can draft POAs that suit your specific needs and circumstances. It’s essential to have a POA that accurately reflects your intentions and includes provisions that protect your interests.
• Compliance with legal requirements: State laws provide legal requirements for creating valid POAs. Attorneys can draft POAs that comply with the applicable laws, preventing future disputes or challenges.

Contact Calabrese Law Associates for Legal Assistance

Calabrese Law Associates is a renowned law firm providing legal solutions to individuals and businesses in the Greater Boston Area and throughout Massachusetts. Our team of experienced professionals can provide legal assistance regarding POAs and life insurance policies. We can assess your case and provide tailored legal solutions. Do you want to learn more about our offerings? Contact us now!

This publication and its contents are not to be construed as legal advice nor a recommendation to you as to how to proceed. Please consult with a local licensed attorney directly before taking any action that could have legal consequences. This publication and its content do not create an attorney-client relationship and are being provided for general informational purposes only.

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