Question

An insured wants to buy a disability income policy that pays a maximum monthly benefit of $1200. To make sure that the disability benefit keeps up with inflation, the insured would need to add?

A. A guaranteed purchase option rider
B. 5% more to the premium each year
C. An additional monthly benefit rider
D. A cost of living

Answer 1

To maintain the purchasing power of a disability income policy against inflation, the insured would need to add a Cost of Living Adjustment (COLA) rider, which adjusts payments based on inflation measures.

Step-by-step explanation:

If an insured wants to buy a disability income policy that maintains purchasing power with rising costs due to inflation, they would need to add a Cost of Living Adjustment (COLA) rider. The COLA rider is designed to increase disability payments over time, often based on inflation measures such as the Consumer Price Index (CPI). This ensures that the benefits from the disability policy do not lose value as the cost of living increases.

To make sure that the disability benefit keeps up with inflation, the insured would need to add a cost of living rider. This rider increases the monthly benefit to account for increases in the cost of living over time. By adding this rider, the insured can ensure that the disability benefit maintains its purchasing power even as prices rise.