The COL rider typically is a term insurance rider providing automatically increasing coverage each year, or every few years, equal to the increase in the cost of living as measured, normally, by the Consumer Price Index (CPI). The insurer bills policyowners for the additional coverage with the regular notice for the base policy. The insurers require no evidence of insurability; however, if policyowners reject the additional coverage at any time by nonpayment of the additional premium, they usually will have to provide evidence of insurability in order to receive future COL adjustments. Once the insurer increases coverage, the new level of coverage remains in effect, even if the owner later rejects increases or the CPI declines.
Some companies guarantee the term rates for the COL additions, while others do not.
In the case of adjustable life products, the COL increases typically are part of the readjusted base policy, rather than term additions, and insurers adjust the premiums accordingly. In universal life policies, insurers may increase the face amount of coverage for COL adjustments without the need for the policyowner to pay additional premiums if the policy has a sufficient cash value to support the higher death benefit at the current premium level.
Reproduced with permission. Copyright The National Underwriter Co. Division of ALM