Florida 2-15 Life, Health and Variable Annuity AgentGeneral Knowledge of Health InsuranceHard
A client is concerned about financial stability if they become disabled and unable to work. They are comparing various disability income insurance policies. Which policy provision would ensure that their benefit amount automatically increases each year to help offset the effects of inflation?
- AGuaranteed Insurability Rider (GIR)
- BResidual Benefit Rider
- CFuture Increase Option (FIO)
- DCost of Living Adjustment (COLA) rider
Show answer & explanationAnswer & explanation
Correct answer: D. Cost of Living Adjustment (COLA) rider
A Cost of Living Adjustment (COLA) rider is specifically designed to protect the purchasing power of disability benefits over time by increasing the benefit amount annually, typically after a period of disability, to account for inflation. This is crucial for long-term disabilities.
Why the other options are wrong
- A. GIR is another term for Future Increase Option, allowing purchase of more coverage, not automatic increases.
- B. Residual Benefit Rider pays a partial benefit if the insured can work part-time but earns less than before the disability.
- C. FIO allows the insured to purchase additional coverage in the future without proving insurability, not an automatic increase.
Cost of Living Adjustment (COLA) Rider
A rider on a disability income insurance policy that provides for periodic increases in benefit payments during a period of disability to help offset the effects of inflation.
- Benefits typically increase annually after 12 months of disability.
- Increases are often tied to the Consumer Price Index (CPI).
- Crucial for long-term disabilities to maintain purchasing power.
- An optional rider that adds to the policy premium.
Memory trick: Riders add special powers to your disability shield!