What is the purpose of a Cost of Living Rider in life insurance?

A Cost of Living Rider in life insurance is designed to address the impact of inflation on the value of the policy. By allowing for adjustments to the policy's face amount over time, the rider ensures that the death benefit remains relevant and adequate to meet the financial needs of beneficiaries in the future. This feature helps to maintain the purchasing power of the policy's death benefit, which can be eroded by inflation.

In the context of life insurance, as the cost of living increases, the fixed amount originally insured may not be sufficient for the beneficiaries, especially years down the line. The Cost of Living Rider provides an automatic increase in the death benefit at regular intervals, ensuring it keeps pace with inflation rates. This is important for policyholders who want to leave a legacy or provide for dependents over time.

Other options do not pertain to the primary function of a Cost of Living Rider. For instance, there are riders that may entail changes in premium payment schedules or provide specific types of coverage, but these do not directly relate to adjusting the face amount based on the cost of living. The distinction is crucial in understanding various riders and their specific functions within life insurance policies.