What is a cost of living rider for life insurance?

How do cost of living riders work?

A cost of living rider increases your coverage amount/death benefit over time, though the exact amount varies by insurer. Some cost of living riders are pegged to the Consumer Price Index (CPI), which means your coverage amount will increase based on the average price changes of consumer goods and services over time. Other cost of living riders increase your coverage at a set percentage or amount at periodic intervals, independent of the CPI.

If you're interested in a life insurance policy with a cost of living rider, ask your insurer how they handle coverage increases over time.

How does inflation impact life insurance?

As the price of everyday goods and services goes up, the buying power of your policy's death benefit goes down. In other words, your death benefit dollars won't go as far as they did when you bought your policy. For example, if you bought a life insurance policy in 2003 with a death benefit of $400,000, and wanted to buy a new one today with the same buying power, you would need a death benefit of $671,676 in 2023 dollars, according to the U.S. Bureau of Labor Statistics' inflation calculator.

Keep in mind that inflation is primarily a concern for life insurance policies that are active for decades. So if you're looking at a 20- or 30-year term life policy or permanent life insurance, then you should consider a cost of living rider to help maintain the value of your policy. Your beneficiaries will have an easier time affording everyday expenses, and you'll have greater peace of mind as well.