A Disability Cost of Living Adjustment (COLA) Rider is an optional addition to a disability insurance policy that provides for an automatic increase in the benefit amount over time to account for inflation. The COLA rider helps ensure that the purchasing power of the disability benefit remains the same over time, despite inflation.
Here are some key features of a Disability Cost of Living Adjustment (COLA) Rider:
For example, let's say John has a long-term disability insurance policy with a monthly benefit of $5,000. He also has a COLA rider that provides for a 3% annual increase in the benefit amount. If John becomes disabled and is unable to work for two years, his monthly benefit would increase to $5,150 per month (3% increase per year x 2 years = 6% increase, $5,000 + 6% increase = $5,300 per month). Without the COLA rider, John's monthly benefit amount would remain at $5,000 per month throughout his disability, even if inflation increases the cost of living.