Identified by the acronym COLA, the cost of living adjustment is a rider that comes into effect once a person submits a claim for disability insurance for a disability lasting one year or more. The amount of the adjustment is dependent upon the option the customer selected during the application process. The monthly benefit will increase proportionately to the elected percentage each year the customer qualifies for the disability insurance. The amount of the COLA caps out at the maximum amount selected during the time of application.
The COLA tends to be a high cost option when it comes to disability coverage, particular for individuals older than age 42. Although the rider is designed as a protector against inflation, once a person is older than 42 the risk for inflation decreases, making the COLA rider a less cost effective option. However, a younger individual facing a long-term disability may find a COLA rider to be a feasible choice.
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