South Carolina Life Insurance Practice Exam

Which rider causes an increase in the face value of a life insurance policy due to inflation?

1. Cost of Living Rider

2. Accidental Death Rider

3. Waiver of Premium Rider

4. Guaranteed Insurability Rider

The correct answer is: Cost of Living Rider

The Cost of Living Rider is designed to address the impact of inflation on the value of life insurance policies. Over time, inflation can significantly erode the purchasing power of a fixed death benefit. By incorporating this rider, the face value of the policy automatically increases based on a specified inflation index, often linked to the Consumer Price Index (CPI). This ensures that the death benefit remains relevant and sufficient to cover the insured's intended financial obligations, such as dependent needs, debts, and living conditions, even as the cost of living rises. In contrast, other riders serve different purposes. The Accidental Death Rider provides additional coverage in cases of death resulting from an accident, but it does not account for inflation. The Waiver of Premium Rider allows the policyholder to suspend premium payments without losing coverage if they become disabled, thereby not affecting the face value in relation to inflation. The Guaranteed Insurability Rider allows policyholders to purchase additional insurance at specified times without undergoing further medical underwriting, but similarly does not adjust the coverage for inflation. Thus, the Cost of Living Rider is the only one among the choices that specifically increases the death benefit to keep pace with inflation.