If used improperly, a Power of Attorney can interfere with beneficiary rights or lead to the wrongful cancellation or modification of a life insurance policy. If you need help with denied life insurance in Pennsylvania call us.
This article explains how a Power of Attorney interacts with life insurance policies, how it affects beneficiaries, and what steps you should take to protect your legal interests.
What Is a Power of Attorney in the Context of Life Insurance?
A Power of Attorney allows the principal to grant another person the ability to manage certain legal, financial, or medical matters. This authority can be general or limited to specific tasks. In life insurance, an agent with valid authorization may be permitted to update policy information, make payments, change beneficiaries, or even cancel the policy, depending on how the document is drafted.
The scope of power depends entirely on the language in the Power of Attorney document. If the document does not specifically mention life insurance, the agent may not have the authority to make decisions about the policy.
Example: A woman appointed her adult son as her agent through a general Power of Attorney. When she became incapacitated, he attempted to change the beneficiary on her life insurance policy to name himself. Because the Power of Attorney did not grant him the power to make changes to life insurance, the insurance company rejected the change. After her death, the original beneficiary received the full payout.
Can a Power of Attorney Affect Life Insurance Beneficiaries?
Yes, in certain cases. An agent may be able to change beneficiaries or manage the policy while the principal is alive and incapacitated. However, this authority must be clearly stated in the Power of Attorney. Once the policyholder passes away, the Power of Attorney becomes void, and the agent can no longer act on their behalf.
If a valid beneficiary is not named and the agent cannot update the policy, the proceeds will likely go to the policyholder’s estate. In that situation, the funds may be subject to probate and divided according to the will or state intestacy laws.
Example: A client came to us after their sibling, who held Power of Attorney, failed to name a beneficiary for their mother’s life insurance policy before her death. As a result, the policy proceeds went into the estate and were delayed for months in probate. With legal help, we expedited the process, but the family could have avoided the delay if the agent had acted in time and with proper authority.
Can an Agent Holding Power of Attorney Be Named a Beneficiary?
An agent can be named as a beneficiary, but only if the policyholder explicitly designates them as such. An agent cannot use their authority under the Power of Attorney to name themselves as a beneficiary unless the document clearly allows that power, which is rare and often scrutinized by courts.
Courts frequently view any self-dealing by an agent as a conflict of interest. Beneficiaries or other family members may challenge these changes if they believe the agent acted inappropriately or under undue influence.
Example: A man appointed his longtime friend as agent and later updated his life insurance policy to name that same friend as beneficiary. After his death, the children contested the change, claiming the agent had pressured their father. The court upheld the change only after reviewing signed documents showing the policyholder made the decision voluntarily while still competent.
Can a Power of Attorney Be Used to Cash Out a Life Insurance Policy?
If the Power of Attorney includes language permitting the agent to manage life insurance, they may be able to surrender or cash out a policy. This often applies to whole life or universal life policies that carry a cash value. The agent must still act in the principal’s best interests and cannot use the funds for personal gain unless the principal explicitly authorized it.
Example: An elderly man with dementia had a whole life policy. His daughter, acting as his agent, cashed out the policy to pay for his long-term care expenses. Because the Power of Attorney authorized her to manage life insurance and the funds were used for his benefit, the transaction was legally sound.
Can a Power of Attorney Cancel a Life Insurance Policy?
An agent may only cancel or modify a policy if the Power of Attorney specifically grants that right. A general Power of Attorney may not be sufficient. If an agent cancels a policy without proper authority, the cancellation can be challenged, and the insurer may be liable for reinstatement or compensation.
Example: A son with a financial Power of Attorney canceled his mother’s term life policy to stop premium payments. After her death, the insurer denied the claim due to lapse. Our firm successfully argued that the son lacked authority to cancel the policy under the terms of the Power of Attorney. The court ordered the insurer to pay the full benefit to the original beneficiaries.
When to Consult a Life Insurance Lawyer
If you suspect a Power of Attorney has been misused in connection with a life insurance policy, it is critical to speak with an attorney. These disputes often involve complex legal questions about fiduciary duties, contract law, and state-specific rules. A life insurance lawyer can review the Power of Attorney, analyze the policy, and help recover benefits wrongfully diverted or denied.