Texas General Lines — Life, Accident, Health and HMOLife InsuranceMedium
A client is considering purchasing a life insurance policy and is concerned about the impact of inflation on the future purchasing power of the death benefit. Which rider would BEST address this concern?
- AGuaranteed Insurability Rider
- BWaiver of Premium Rider
- CCost of Living Adjustment (COLA) Rider
- DAccidental Death Benefit Rider
Show answer & explanationAnswer & explanation
Correct answer: C. Cost of Living Adjustment (COLA) Rider
The Cost of Living Adjustment (COLA) Rider is specifically designed to protect the purchasing power of the death benefit against inflation. It automatically increases the policy's face amount based on an inflation index, such as the Consumer Price Index (CPI), without requiring proof of insurability.
Why the other options are wrong
- A. This rider allows the insured to purchase additional insurance at specified intervals without proof of insurability, but it doesn't automatically adjust for inflation.
- B. This rider waives premiums if the insured becomes disabled, not related to inflation.
- D. This rider pays an additional benefit if death is due to an accident, unrelated to inflation.
Cost of Living Adjustment (COLA) Rider
A life insurance rider that automatically increases the policy's death benefit over time to keep pace with inflation, typically tied to an index like the CPI.
- Protects against inflation.
- Increases death benefit.
- No proof of insurability required for increase.
Memory trick: Riders add protection, COLA fights inflation.