What Is a Life Insurance Cost-of-Living Rider?

With life insurance, there are a number of riders that you can choose to purchase that will give you additional coverages. The cost-of-living rider is an example of a rider that you might want to consider purchasing.

Cost-of-Living Rider

This is a rider that can be purchased with many different types of life insurance. This type of coverage is designed to help you hedge your bets against inflation. For example, if you purchase this type of coverage, your policy is going to increase in value if inflation increases. If you purchase a policy and then pass away 20 years later, there will have been some inflation in that time span. With this coverage, your family would actually receive more than the face value of the policy because of the cost-of-living rider.

How it Works

This type of policy uses a financial index in order to determine how much inflation has occurred over a certain amount of time. Most of the time, the policies will use the Consumer Price Index in order to determine how much inflation has taken place. The Consumer Price Index measures the change in prices of many different things that consumers regularly by to gauge inflation.

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