Written by Chris Gure

Inflation is an unavoidable part of life and is something we can all plan for—sometimes decades in advance. In our physician-oriented inflation series, we are addressing how doctors can get a head start on inflation so they don’t feel its effects as strongly in the future.

No matter what plans we lay, life may have a different idea about what’s in store for us. There may come a time when a physician— who spent a lot of money on tuition and a lot of time in school— finds they are unable to work due to an injury or illness. This is when disability insurance can step in to help policyholders maintain their standard of living even if they can’t work for a temporary or extended period of time.

When someone goes to purchase disability insurance, they may choose to add a cost-of-living adjustment (COLA) rider. This rider can help policyholders fight the effects of inflation.

Keep reading for more insight into what a COLA rider is and why you may choose to buy one.

What Is the COLA Rider?

A COLA rider can help ensure that disability insurance benefits you’re paying for keep up with inflation. Adding a COLA rider to your disability insurance rider can be expensive, but you’ll find that you can easily recoup the costs if you do ever need to use your policy’s benefits, as a COLA rider can greatly increase that benefit amount. You’ll especially get your money’s worth if you end up needing to utilize your policy benefits early in your career.

The way this works is the COLA rider adjusts your policy’s monthly benefit on an annual basis. This increase can be based on a fixed percentage or may be linked to the consumer price index.

Is the COLA Rider Worth Purchasing?

A COLA rider can be very well worth it if you end up needing to tap into your disability insurance benefits one day. That being said, not everyone may find this extra cost worth it. It can be helpful to first make sure you have the maximum amount of coverage you qualify for based on your income before you consider purchasing a COLA rider. That way, you can make sure you’re gaining access to as large a benefit amount as possible before you worry about inflation.

Your age can also help you determine if this is the right move to make. When someone is young and has limited assets, adding a COLA rider to their disability policy can help secure their financial future. If someone is inching closer to the end of their career, they likely don’t need to worry about inflation affecting their benefits too harshly.

It’s also worth noting that COLA riders only increase monthly benefits after someone has already been disabled for 12 months, so only those filing longer-term claims can really benefit from this
rider.

The Takeaway

In short, COLA riders help disability insurance policies keep pace with inflation. If someone is already maxing out their potential coverage, they may find that a COLA rider gives them some extra peace of mind that they’ll have ample financial protection if one day they become unable to work. ☤

Go to Chris Gure’s Fortress Financial Substack to learn more financial strategies.
(https://fortressphysicians.substack.com)