If you’re thinking about retiring soon, you’ll want to keep an eye on inflation and other factors that might reduce your spending power. Adding a cost-of-living rider to your life insurance policy might be a way to protect against inflation. An annuity contract might also have this sort of rider. Does it, however, fit your lifestyle? You can make an informed decision if you know how a life insurance cost-of-living rider works.
Exactly What Does a Life Insurance Cost-of-Living Rider Covers?
Riders are often added to a life insurance policy to enhance your coverage. Adding a cost-of-living rider to your life insurance policy is a way for you to stay up with inflation. As a result, when you die away, your loved ones will be left with a higher sum of money in the form of a death benefit.
Inflation and rising costs may significantly influence the value of an insurance policy, which is why riders like this one exist. By not including this form of a rider, your beneficiaries may get fewer death benefits in the long run. Inflation has reduced the value of insurance.
How a Life Insurance Cost-of-Living Rider Works
It’s possible to enhance your policy’s death benefit over time to keep pace with rising inflation. Adding this form of a rider, like others, might raise your insurance cost. However, this is most often an increase of a smaller magnitude.
Only some kinds of life insurance plans can come with a cost-of-living rider. However, this may only be possible with a single accidental death benefit policy rather than a more standard term or a permanent policy.
What a Cost-of-Living Rider for Life Insurance Can Do for You
Inflation protection is a significant advantage of adding a cost-of-living rider to a life insurance policy. Price increases reduce the purchasing power of your money. Adding a cost-of-living rider to your insurance may leave a death benefit to your loved ones with some spending power. However, there are a few things to keep in mind. If you want to add a cost-of-living rider to your life insurance policy, expect to spend a bit extra on your premiums. This may be a minor expense compared to the cost of a second life insurance policy.
Keep in mind that cost-of-living riders may only be offered specific types of life insurance policies. Insurance agents and financial advisors will be able to assist you in evaluating the type of life insurance that is needed to put on a rider to cover rising living costs.
Lastly, riders for an increased standard of life may not be sufficient to counteract the effects of rising prices. Even if your policy’s face value grows faster than inflation, the death benefit you give your family may lose some of its purchasing power.
Is it Really Necessary to Have a “Cost-of-Living” Rider?
If you’re concerned about how inflation could affect your insurance’s death benefit, you might consider adding a cost-of-living rider. Your spouse may need this rider if you’re married and the principal breadwinner.
In contrast, diversifying your investments to reduce the impact of inflation may mean you don’t require life insurance with a cost-of-living rider. Since the stock market has a high link to real estate value, it is often regarded as an inflationary hedge. Owners of rental properties can raise rents over time to keep pace with inflation.