Life Insurance✓ Verified · outline & fact-checked · Sep 2026Difficulty 1/5
A cost-of-living adjustment (COLA) rider on a life insurance policy is designed to:
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Answer & full 3-part explanation (select an option above, or peek)
Why B is correct
A COLA rider adjusts the death benefit upward periodically — either by a fixed percentage or in line with an inflation index such as the CPI — so that the coverage keeps its purchasing power over time. The additional coverage is funded by the policy's cash value, dividends, or additional premium, depending on the design. This feature is valuable for long-term coverage because a fixed dollar amount loses real value as prices rise. It does not change premiums, guarantee dividends, or affect policy loans.
Why the other options are wrong
- A) COLA raises the benefit, not the premium schedule; premium reductions tied to interest rates are not part of this rider.
- C) Dividend payment depends on the insurer's participating experience and is not guaranteed by a COLA rider.
- D) Borrowing against cash value is a policy loan feature governed by the loan provision, not by COLA.
Memory hook
COLA pumps up the death benefit so inflation can't shrink it.