What is the function of a Cost of Living (COL) rider in insurance policies?

A Cost of Living (COL) rider is designed to automatically adjust the benefit amounts of an insurance policy, typically life insurance or disability insurance, in accordance with inflation rates or changes in the cost of living. This adjustment helps ensure that the purchasing power of the policy benefits remains intact over time, countering the effects of inflation.

When individuals consider long-term financial security, especially in the context of life insurance or disability benefits, it's essential that these benefits maintain their value as the cost of living increases. A COL rider effectively addresses this concern by specifying that the benefits will rise periodically—often tied to an index or a specific inflation rate—providing policyholders with a safeguard against inflation's erosive impact on their benefits.

In essence, the function of the COL rider is to ensure that as living costs increase, the insurance benefits correspondingly increase, thereby preserving the financial protection originally intended by the policy. This rider supports policyholders in maintaining their financial security throughout different economic conditions.