It’s simple enough; life insurance helps protect those who are important to you. You designate a beneficiary or beneficiaries, and when you die, they receive the life insurance money. But, what happens if your beneficiary passes away before you, there’s a divorce, or another incident arises? Sure, you can update your insurance beneficiary designation, but what if you’re no longer physically or mentally capable of handling your financial, business, or other life affairs? That’s where a power of attorney (POA) plays an essential role in your estate planning.
Investopedia defines Power of Attorney as “…a legal document giving one person (the agent or attorney-in-fact) the power to act for another person (the principal). This agent can have broad legal or limited authority to make decisions about the principal’s property, finances, or medical care.”
4 Common Types of Power of Attorney
A power of attorney can be structured in several ways. The four most common forms are:
General POA – gives authority to a person (known as an “agent”) to handle an individual’s (known as the principal) legal and financial affairs. The POA typically ends if the principal becomes incapacitated. Below are examples for what a general POA may be able to do on behalf of the principal:
- Manage bank accounts
- Manage or settle real estate matters
- Make deposits or withdrawals to bank accounts
- Sign and file tax returns or insurance forms
- Sign checks
Special or Limited POA – allows an agent to act on the principal’s behalf for a specific matter, event, or for a specific period of time. An example of this type of POA is an agent having the power to approve business transactions if the principal is out of the country.
Durable POA – includes a durable clause that allows an agent to continue to have POA if the principal becomes incapacitated. It should be noted that a durable power of attorney does not give the agent the authority to make decisions regarding the principal’s health. In other words, an agent with durable POA does not have the power to end life support of a principal that is incapacitated or nonresponsive.
Springing POA – is activated when a specific future event happens, like incapacitation of the principal. Trust & Will defines springing power of attorney as a designation that gives a person “the power to make medical or financial decisions on behalf of another person, but only once certain conditions are met.”
Why a POA is Important With Life Insurance
The type of power of attorney you select and how it’s defined is very important in your estate planning efforts. Consider whether or not you’d like your agent to be able to change your life insurance beneficiary. There may be a legitimate reason in the future for an agent to be able to change a beneficiary. For instance, if the named beneficiary dies, you may want your agent to be able to make these changes.
It is essential to remember that the role and responsibilities of a POA end with the passing of the principal. If you’re interested in setting up a POA, you can find templates online to help, but keep in mind that requirements and regulations can differ by state. If you have any questions about how a power of attorney and life insurance for seniors go hand in hand in protecting your assets and helping ensure your wishes, visit our FAQ center or contact us today.