Tennessee Insurance Practice Exam

What benefit does a Cost of Living rider provide to the insured?

1. Tax benefits

2. Investment opportunities

3. Additional death benefits

4. Reduced premiums

The correct answer is: Additional death benefits

A Cost of Living rider is designed to increase the death benefit of a life insurance policy in accordance with changes in the cost of living, typically measured by the Consumer Price Index (CPI). This rider helps to ensure that the purchasing power of the death benefit remains intact over time, protecting beneficiaries from inflation. By adding this rider, the policy's death benefit can adjust upward periodically, providing additional coverage to account for the declining value of money over time. This is particularly beneficial for long-term policies, where inflation could significantly reduce the real value of the death benefit by the time it is paid out. Tax benefits, investment opportunities, and reduced premiums are not features of a Cost of Living rider. Instead, the primary focus of this rider is to enhance the death benefit, ensuring that the financial support intended for beneficiaries does not diminish due to economic changes.