Can a Power of Attorney Change a Life Insurance Beneficiary?

Estate planning can bring a mix of feelings, from anxiety about the future to a sense of peace. But it’s an important step in making sure your affairs are settled when the time comes. Having a Power of Attorney (POA) can alleviate stress during an emotional time and allow a trusted partner to handle some responsibilities while you focus on more important matters.

In this article, we will look at the functions of a Power of Attorney, what a life insurance beneficiary is, and whether a Power of Attorney can change a life insurance beneficiary.

What Is A Power of Attorney?

A Power of Attorney is a legal document that authorizes one or more people to act on your behalf as your agent. The person who is named the POA in the document is referred to as an “agent” or “attorney-in-fact.”

What Are The Different Types Of Power of Attorney?

There are six POA types.

1. General Power of Attorney

This type of POA provides broad powers to the agent and allows them to make financial and legal decisions in multiple matters. These POAs generally go into effect as soon as they are executed and ends when the principal agent either revokes it or dies. There are a few parameters in place. For example, an agent can’t enter into a marriage on your behalf or change your last will and testament.

2. Medical Power of Attorney

Also known as a Healthcare Power of Attorney, this type of POA allows the agent to make healthcare decisions for the principal if they are unable to do so. This can include decisions about treatment, medical care, or end-of-life care.

3. Financial Power of Attorney

A Financial POA specifically grants authority to manage financial matters, like managing bank accounts, paying bills, or filing taxes, but not other personal affairs, such as medical decisions.

4. Limited Power of Attorney

Also known as a Special POA, a Limited POA is restricted to specific actions or activities. Trying to exert power past the parameters of the document can result in personal liability or an invalid transaction.

5. Durable Power of Attorney

This type of POA means your agent’s authority continues if you are incapacitated. A Durable POA allows for planning in a situation where you are unable to make decisions. In most states, this is viewed as the default POA and courts will assume a Durable POA is in place unless otherwise stated.

6. Springing Power of Attorney

A Springing POA is enacted whenever a certain event “springs” it into effect. For example, if you used a Springing POA for a business and you went overseas, the POA would allow your agent to handle business matters while you were away. These types of POAs are generally discouraged in estate planning as the nature of your incapacitation can be fluid and can take time.

What Is A Life Insurance Beneficiary?

A beneficiary is a person or entity that you name in a life insurance policy as a death benefit. This can be a child, spouse, close friend, business partner, charity, or a trust. When you set up your life insurance policy, you are asked to name a beneficiary but you don’t necessarily have to divulge that information to the related parties. 

There are two types of beneficiaries. The primary beneficiary receives the death benefits if he or she can be located upon the time of your death. The contingent beneficiary receives the benefits if the primary beneficiary can’t be found.

It’s important to name at least one beneficiary. If no one is named, the death benefits go to your estate. 

Does a Will Supersede Life Insurance Beneficiary?

A will does not supersede a life insurance beneficiary designation. Life insurance policies operate outside of a will and are governed by the terms of the contract with the insurance company. The named beneficiary will receive the death benefit, regardless of what the will states. 

If you have no named life insurance beneficiary, or your primary beneficiary is deceased and there’s no contingent, then the death benefit usually goes to your estate. At that point, it would go through probate and be distributed according to your state’s intestacy laws (which govern the distribution of assets when someone dies without a will).

Can a POA Change a Life Insurance Beneficiary? 

An agent can change a life insurance beneficiary only if the POA document explicitly grants the agent the authority to do so. It is not an automatic power that comes with a standard POA. Here are the key factors:

Explicit Authority Required

To change a life insurance beneficiary, the POA document must specifically state that the agent has the authority to make beneficiary changes. If this power is not clearly granted in the document, the POA cannot make such changes.

Acting in the Principal’s Best Interest

Even if the POA has the authority to change the beneficiary, the agent must always act in the best interest of the principal. Any changes that seem to benefit the POA agent or another party more than the principal could be subject to legal challenges.

Irrevocable Beneficiary

If the life insurance policy has an irrevocable beneficiary, the POA (or even the principal) cannot change the beneficiary designation without the consent of the irrevocable beneficiary.

Legal & Ethical Considerations

Changing a beneficiary can be a significant decision, and if the principal is incapacitated, the agent’s actions may be closely scrutinized by insurance companies or courts to ensure the change is in line with the principal’s wishes.

The Independent Insurance Associates team is here to help you with all of your insurance needs. It’s not always easy figuring out the best path to providing for your loved ones, but we can make that process much smoother and more comprehensive. Contact us today!