What Does Cost-of-Living Adjustment Mean?
A cost-of-living adjustment (COLA) refers to a rider to a disability insurance policy that adjusts the benefits the insured would receive if they were to file a disability claim and the disability persists for over a year. Depending on the terms of the rider, this rider increases your monthly benefit annually by a certain percentage based on the consumer price index.
It is also known as a cost-of-living allowance or cost-of-living rider.
Insuranceopedia Explains Cost-of-Living Adjustment
The purpose of a COLA rider is to ensure disability payments keep up with the rate of inflation; however, it is one of the most expensive riders to a disability insurance policy. It may make more sense for younger policyholders as they have more working years ahead of them and they have more years to collect benefits as well as accumulate compounded COLA increases.
COLA is also applicable to social security (SS) and retirement benefits.