What is a COLA Rider?
An Overview

What is a COLA Rider?

Riders expand or limit coverage on a policy.  Usually, they are found at the back of a policy.

Adding riders can impact premium amounts. A Cost of Living Adjustment (COLA) rider is one of the more common riders added to disability insurance policies.

The cost of living typically goes up over time. Therefore, a COLA helps your benefits keep pace. Under most policies, the adjustment is made yearly.  The amount of the increase is calculated as a fixed percentage or based on the Consumer Price Index. However, insurers sometimes cap the overall increase in benefits.

COLAs are most beneficial to younger claimants. Younger claimants can be on claim for decades. Without a COLA, their benefit amount would become less effective over time.

Not All COLAs are the Same

COLAs are not the same across the board. Typically, COLAs kick in after a year of being on claim. However, sometimes there is a longer waiting period.

COLAs also can be limited in other ways. Sometimes, a cap is set on the amount of increases over the life of a claim. For example, increases may only be made for five years or to a certain age. A COLA rider may expire at age 65, even if your policy has lifetime benefits.

Some plans also set a maximum benefit amount. This means, if you reach this amount, a COLA will not be applied. This type of provision is typically found in employer-sponsored plans. Because of this, it is important to read your policy carefully. In some policies, limitations like maximum benefit amounts may be in a different part of the policy. So, even if you read the entire rider, you may not have a full understanding of your COLA.

If you are on claim, and have a question about how COLAs work, please feel free to contact one of our attorneys directly.


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