Life Insurance✓ Verified · outline & fact-checked · Sep 2026Difficulty 1/5
The purpose of a cost of living adjustment (COLA) rider on a life insurance policy is to:
Select an option to reveal the answer and the full 3-part explanation — free, no signup.
Answer & full 3-part explanation (select an option above, or peek)
Why A is correct
A cost of living adjustment (COLA) rider periodically increases the policy's death benefit to help the coverage keep pace with inflation. The increase is typically tied to a consumer price index or a fixed annual percentage, and the additional coverage is generally priced into the premium. Without such protection, the real value of a fixed death benefit erodes over time, so the rider preserves the purchasing power of the beneficiary's proceeds. The rider does not affect investment returns, premiums, or the policy's fundamental structure.
Why the other options are wrong
- B) The COLA rider adjusts the death benefit for inflation. Investment return is a function of the policy’s credited rate or separate account performance, not of this rider.
- C) The COLA rider does not reduce premiums as the insured ages. Premiums are set by the policy and may actually rise if the cost of the added coverage is priced in.
- D) The rider does not convert the policy to term insurance. Conversion to permanent coverage is a feature of convertible term policies, unrelated to inflation adjustment.
Memory hook
COLA rider = inflation proofing for the death benefit. Coverage grows so the payout keeps its buying power.