Health Insurance Mastery Practice Exam

What does the cost-of-living adjustment (COLA) rider do in disability income policies?

1. Decreases the monthly benefit

2. Automatically increases the monthly benefit during disability

3. Offers a one-time payment

4. Allows a fixed monthly benefit

The correct answer is: Automatically increases the monthly benefit during disability

The cost-of-living adjustment (COLA) rider in disability income policies serves the important function of ensuring that the monthly benefit amount is adjusted in line with inflation. This rider automatically increases the monthly benefit during a period of disability, which helps to maintain the purchasing power of the benefits over time. Without a COLA rider, the fixed benefit payment could lose value as the cost of living rises, potentially placing a financial strain on the policyholder if they are unable to work due to a disability. By providing this increase, the COLA rider acts as a safeguard against inflation, ensuring that the policyholder's benefits keep pace with rising costs for essential expenses such as housing, food, and healthcare. This adjustment is typically based on a specified index or percentage increase, making it a valuable feature for individuals concerned about long-term financial stability during extended periods of disability.