Own-Occupation Policies
The Cost of Living Adjustment rider provides an automatic increase in benefit, during a disability claim, used to keep up with adjustments in the cost of living. For someone who experiences a long-term disability claim, the COLA rider may be critical to their financial security. Below is a detailed review of important factors relating to the COLA rider.
Available Adjustment Options
The following are some of the options offered in today’s marketplace. Every carrier offers a different option, so be sure to review this with a Disability Specialist if you decide to add the COLA rider to your policy.
- Fixed Compound Adjustment: This option will increase your monthly benefit by a compounded interest rate each year that you are disabled, beginning on the 1st anniversary of a disability claim. The percentage increase will vary with each insurance carrier.
- Fixed Simple Adjustment: This option will increase your monthly benefit by a simple interest rate each year that you are disabled, beginning on the 1st anniversary of a disability claim. Again the percentage increase will vary with each insurance carrier.
- Indexed Adjustment: This option will increase your monthly benefit by an interest rate, which is tied to the Consumer Price Index, for each year that you are disabled, beginning on the 1st anniversary of a disability claim.
- Four-Year Delayed Adjustment: This option will increase your monthly benefit, either by a simple or compounded interest, for each year that your are disabled, beginning on the 4th anniversary of a period of disability.
How Benefits Transition After A Disability
The Cost of Living Adjustment rider will clearly provide a great benefit during a period of disability, but what happens after you recover and return to work? Review the details of this provision carefully, as each carrier will have its own structure:
- Some carriers will reset your monthly benefit to the original benefit with which your policy started.
- Some carriers will allow you to purchase the additional increases that your COLA rider provided you. In purchasing this increased benefit, your premium will also increase.
- Some carriers will continue your policy benefit at the increased benefit amount and will not increase your premium.
