Essentially, power of attorney means that you're authorizing someone to act on your behalf if you're unable to do so. There are several types of POA — some give the trusted person the ability to make health care decisions; others allow them to make financial decisions, from buying or selling property to determining what to do with the cash value of a life insurance policy.
The person given the authority to make decisions is an agent or attorney-in-fact. The person assigning this responsibility is called the principal. The POA may be crafted specifically for the principal's needs, giving the agent limited powers, for example, or powers during a specific time frame. A durable power of attorney (DPOA), another type of POA, remains in control if the principal is determined to be mentally incapable of making decisions.
Imagine you're going to be out of the country on a cruise you booked a year ago when, as it happens, you're supposed to be closing on your home. In that case, it may be necessary to have a power of attorney. Assigning someone these specific POA abilities means that the closing can happen as planned, despite your absence.
You may also establish power of attorney if you're elderly and wish for the help of someone with more financial knowledge to make decisions on your behalf. In that case, it's often an adult child who acts as the POA.
In the case of a health POA, you may assign someone as your agent if you're undergoing major surgery in the event decisions need to be made while you're unconscious.
Choosing the right person as POA is vitally important. It must be someone whom you trust implicitly to make decisions for you. While this often means a member of your family or close friend, that's not always the case. You may trust your child, for example, to always have your best interests at heart. But if they're not good at handling their own money, they may not be the best choice.
In the event of a health POA, it's important to discuss your wishes with your agent so they're clear on what you'd want them to do in the event of a serious healthcare situation. You need to trust that setting up power of attorney with this person was the right choice for your needs.
It's not hard to set up a POA. Rules for doing so differ by state, but in some places, it's possible to download a form and set one up from the internet. Be sure you're working with the standardized form appropriate for your state.
You may also work with a lawyer to set up a POA, which is preferable in many cases. A family lawyer will ensure you're using the correct wording so your wishes will be adhered to by your agent. Note that you may need to have the form notarized after filling it out and signing it.
Although a POA can address most of your financial and health situations, a few things cannot be done with a POA. One of those is related to your will. Your designated POA agent cannot make a will for you or amend or revoke a will that's already made. This is to protect you if an unscrupulous agent isn't acting in your best interests.
Another power that your POA can't handle for you is voting. Your agent can request an absentee ballot on your behalf, but they cannot go into a voting booth to vote for you. So, this can't be a reason to get a power of attorney.
When would power of attorney be needed in regard to life insurance? If you have a trusted person you've assigned POA rights to, they can work with you to help you understand and set up the best possible life insurance policy for your needs. If your agent helps you choose your beneficiary, be sure they're working in your interests and not their own.
We recommend checking out Ethos Life insurance plans, which include term and whole life policies for those wishing to help protect their loved ones. It's easy to get a no-commitment quote for life insurance online and to determine how much insurance you need to be adequately covered.