What benefit does the Cost of Living Adjustment (COLA) provide in personal disability insurance?

The Cost of Living Adjustment (COLA) feature in personal disability insurance is designed to ensure that the benefit payments keep pace with inflation. This is achieved by adjusting the amount of monthly or weekly benefits according to increases in the Consumer Price Index (CPI). As living costs rise, many individuals find that their initial benefit amount may not sustain their standard of living over time. The COLA addresses this concern by increasing benefit payments to reflect the current cost of living, thereby helping to maintain the purchasing power of the insured during their period of disability.

This feature is particularly valuable for long-term disability policies, where the duration of benefit payments can extend many years. Without such adjustments, even a relatively small annual inflation rate can significantly erode the value of fixed benefit payments over time. Therefore, the COLA ensures that beneficiaries receive adequate financial support that aligns with the economic changes that impact their expenses.