Life & Health Insurance Exam (National Portion)Policy Provisions, Options, and RidersEasy
A life insurance policyowner is concerned about future inflation eroding the purchasing power of the death benefit. Which rider would best address this concern by increasing the policy's face amount without requiring evidence of insurability?
- AGuaranteed Insurability Rider
- BAccidental Death Benefit Rider
- CCost of Living Adjustment (COLA) Rider
- DWaiver of Premium Rider
Show answer & explanationAnswer & explanation
Correct answer: C. Cost of Living Adjustment (COLA) Rider
The Cost of Living Adjustment (COLA) Rider specifically increases the death benefit of a life insurance policy to keep pace with inflation, typically tied to an index like the CPI, without requiring further evidence of insurability.
Why the other options are wrong
- A. This rider allows the insured to purchase additional insurance at specific intervals without evidence of insurability, but it doesn't automatically adjust for inflation.
- B. This rider pays an additional benefit if death occurs due to an accident, it does not adjust the death benefit for inflation.
- D. This rider waives premium payments if the insured becomes totally disabled, it does not adjust the death benefit for inflation.
Cost of Living Adjustment (COLA) Rider
A rider that automatically increases the death benefit of a life insurance policy to offset the effects of inflation, usually tied to an index like the Consumer Price Index (CPI), without requiring evidence of insurability.
- Increases death benefit to maintain purchasing power.
- Typically linked to an inflation index (e.g., CPI).
- No evidence of insurability required for increases.
- Usually involves a small additional premium.
Memory trick: COLA makes your coverage COLD (Cost Of Living Defense) against inflation.