Question

Mary is concerned that inflation will reduce the purchasing power of her life insurance proceeds when she dies. To provide protection against this risk, she added a rider to her policy that allows her to purchase one-year term insurance equal to the cumulative change in the consumer price index from the issue date of the policy. This provision is called a

Answer 1

Mary added a rider to her life insurance policy for inflation protection, known as an inflation protection rider or CPI rider. This adjusts her coverage based on the consumer price index to maintain the value of the proceeds over time.

Step-by-step explanation:

Mary is concerned that inflation will reduce the purchasing power of her life insurance proceeds when she dies. To protect against this risk, she has added a rider to her policy that adjusts her coverage amount based on changes in the consumer price index (CPI). This type of provision is often referred to as an inflation protection rider or a CPI rider. It ensures that the policy's death benefit keeps pace with inflation, preserving the real value of the insurance proceeds. Such riders are critical for long-term financial planning, especially considering that those on fixed incomes, such as retirees with defined benefit pensions, face a considerable loss of buying power over time due to even modest inflation rates.