A power of attorney has many uses, if used properly. A power of attorney may enter into contracts for you, buy property, receive cash or other payments for you and represent you in legal claims made against you. One thing you may not want your power of attorney to do on your behalf is to cancel a life insurance policy.
A power of attorney is a legal contract that allows you to hand over the decision-making process to another individual. A power of attorney may be general or durable. A general power of attorney gives authority to make various decisions for you when you are alive and of sound mind. The power of attorney is no longer valid when you are incapacitated, dead or disabled. A durable power of attorney overcomes these limitations, allowing the power of attorney to continue even after a disability or incapacitation.
A life insurance policy protects your family from negative financial consequences of your death since it provides money to pay for your financial obligations. A power of attorney can do many things, but cannot alter or cancel this contract. Since the beneficiaries have a right to this money, this becomes an important feature of a power of attorney document. A person is prevented from taking advantage of you or your family when you're unable to make decisions for yourself.
You get the peace of mind of knowing your family is protected, as long as all premiums are paid on the policy. This ensures that you do not disinherit your family or cause them to lose money they need by appointing an unscrupulous power of attorney. Even if the power of attorney means well, he may have different financial goals for your family than you do and could potentially make decisions that your family would disagree with.
Even though a power of attorney cannot alter your life insurance policy, you should be careful in selecting one. Your power of attorney still has the authority to sign contracts for you, accept cash and handle your financial affairs. If your power of attorney fails to pay a life insurance premium, it could trigger the policy's cancellation for nonpayment of premiums, thus skirting the protections provided to you under the law.
- "Practicing Financial Planning for Professionals (Practitioners' Edition), 10th Edition"; Sid Mittra, et al.; 2007