Question

Which of the following policies can typically be purchased as either a single contract or as a rider to another type of policy?

Select one:
a. A COLA policy
b. Optional Term
c. Decreasing Term
d. Increasing Term

Answer 1

A COLA policy can often be added as a rider to various insurance policies to protect against inflation, similar to how labor unions used COLAs to ensure wages kept up with inflation.

Step-by-step explanation:

The policy that can typically be purchased as either a single contract or as a rider to another type of policy is a COLA policy (Cost of Living Adjustment). In the context of insurance, COLA riders are added to disability insurance policies to adjust the benefits over time to keep up with inflation. While this term originates from labor union wage contracts in the 1970s and 1980s, where a COLA would guarantee that wages kept pace with inflation, in insurance, it serves a similar purpose to ensure that the purchasing power of the benefits remains consistent over time.

As a rider, a COLA policy isn't a standalone insurance product but is an additional feature that can be attached to various types of insurance policies, such as life insurance or long-term disability insurance, to provide protection against inflation. This is similar to how COLAs in wage contracts protected workers' earnings against the erosion of purchasing power due to inflation.