When the COLA cost of living adjustment rider is effectuated in a life insurance policy the resultant premium will?

Answer 1

The base policy premium may increase as a consequence of inclusion of a COLA rider, but not necessarily. Some COLA riders are accompanied by an extra charge; in similar fashion to many other riders (e.g., waiver of premium). However, some riders only result in an extra premium charge when increases in coverage actually occur. Most COLI riders include a calculation date and a calculation or inflation adjustment. the calculation date is the point in time (e.g., annually, every three years) when a measure of inflation is taken to ascertain whether an increase in coverage is warranted under the terms of the rider (i.e., was inflation high enough during the period to trigger an increase). The calculation adjustment is the measure of inflation, typically based on the Consumer Price Index (CPI). Riders also generally define a minimum adjustment and a maximum adjustment. The minimum is designed to avoid costly administrative charges for trivial increases in coverage. The maximum is designed to protect the insurer against hyperinflation (e.g., 20%). When inflation has increased by a sufficient amount to trigger an increase in coverage under the terms of the rider, and the policy-owner has accepted the offer for additional coverage, then the premium will increase commensurate with a standard risk at the insured's current age (without evidence of insurability). Many COLA riders will automatically terminate at a defined upper age and can be terminated by the insurer if the insured rejects the offer for additional coverage