By Eric Rosenberg, WCI Contributor

Disability insurance is important in protecting yourself and your family if an unexpected injury or illness takes you out of the workplace. Unless you have enough savings to live comfortably without future income, disability insurance is essential for most working adults, including medical professionals.

When purchasing disability insurance, financially savvy households look at their typical expenses to ensure they have enough coverage for their needs. But with inflation and lifestyle changes, costs typically rise over time. That’s where a cost of living adjustment (COLA) rider comes in. Here’s a look at how cost of living adjustment disability insurance riders work and insights into whether they could make sense for your financial needs.


What Is a Cost of Living Adjustment (COLA) Disability Insurance Rider?

As the name implies, a cost of living adjustment disability insurance rider is an add-on to a disability insurance policy that increases the benefit over time to keep up with cost of living changes. The COLA rider typically increases your insurance benefit tied to the consumer price index (CPI), a common measure of inflation.

After a recent period of high inflation om 2022 and 2023, it’s easy to see why a COLA rider could be valuable. If your average monthly expenses go up by 10% over a few years, getting the disability insurance payout you started receiving 5-10 years ago may not be enough.

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How Does the COLA Rider Work?

Because disability insurance is often tied to your income, your disability insurance benefit grows over time as your salary increases. But if you’re disabled and your benefit begins, the rate stays the same as long as you receive disability. A COLA rider increases the benefit amount after disability insurance payouts begin.

In most cases, the increase is tied to the CPI and takes place annually, starting after 12 months of benefit payments. Talk to your insurance agent or read your policy to learn more about how your COLA rider works if you already have one or if you’re shopping for new disability coverage.

According to the American Bar Association, about 25% of current 20-year-olds will become disabled at some point during their career. While you may be healthy and expect to make it through your career without a disability, the odds are relatively high that you’ll need to tap into disability insurance at some point during your working years. Depending on your financial situation, that makes a COLA rider a worthwhile investment.


How Does Inflation Impact Disability Insurance?

disability insurance rider cola

To better understand how inflation impacts disability insurance and why a COLA rider could be helpful, consider inflation rates in the early 2020s. While inflation was typically low in the 2010s, the period beginning with the COVID pandemic saw much higher inflation. In 2021, the inflation rate was 4.7%. In 2022, it was 8%. For 2023, it was around 4.5%. When you consider the compounding impact of inflation, our dollars lost a lot of value over just those three years. If your income doesn’t increase to keep up with inflation, your purchasing power decreases as dollars become worth less and less.

Some inflation is expected even in the best economic conditions, so planning ahead for some inflation makes sense. But you never know when a surprise like the 8% inflation rate in 2022 will appear, so it’s important to firm up your finances just in case you’re disabled and inflation picks up.


COLA Rider vs. Buying Additional Coverage

An alternative to a COLA rider is to buy additional disability coverage if you expect it may be needed. For the most part, as long as you’re willing to pay for it, you can get as much insurance coverage as you want . . . when you’re healthy.

Why pay extra for a COLA rider?

You may not know you need a COLA rider until it’s too late. After you’re disabled, you’re not going to be able to increase your disability insurance. Unless you already have enough disability insurance in place, your benefit won’t rise when you’re disabled unless you have the COLA rider.

Some doctors, particularly those later in their careers, may not need a COLA rider. If you can self-insure, meaning you can handle the costs if you’re disabled and don’t get any insurance benefits, you may not need the rider or additional coverage. But the rider may be an excellent choice until you’re on a stable enough financial footing or are nearing the end of your working years.

More information here:

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Thoughts on Disability Insurance From a Disabled Doctor


COLA Rider Example for Doctors

Imagine a 35-year-old surgeon in New York earning $400,000 a year, choosing between disability insurance options. He considers a $12,000 monthly benefit policy from MetLife, with special riders that add to the coverage, costing $443.84 monthly after a discount. Dropping one of the riders, the COLA (Cost of Living Adjustment), cuts the monthly premium to $336.56, saving about 24% on costs. This saving nearly pays for a larger $16,000 monthly benefit policy, which costs $447.19 monthly with the same discount.

Deciding against the COLA rider seems wise for shorter disabilities, as investing the $12,000 monthly benefit at a 3% growth rate reaches $16,127 in 10 years. Yet, most disability claims last less than five years, suggesting additional immediate coverage might be more beneficial—especially as the policy ends at age 65. Without the COLA, a policy with a $16,000 benefit totals a maximum of $5,712,000 by age 65, compared to $6,852,000 with the COLA rider at a $12,000 benefit, highlighting a tradeoff between more money now vs. potentially more later.


Should Doctors Buy the Cost of Living Adjustment (COLA) Disability?

According to insurance agent Lawrence B. Keller, CLU, ChFC, CFP®, a longtime White Coat Investor contributor, “I think this rider is mandatory in the first half of your career. However, since most policies only pay until age 65 or 67, I do not see much reason for someone in their 50s or 60s to be paying for it.”

For shorter disabilities or if you’re never disabled, the COLA rider won’t pay off. But for longer disabilities, it becomes extremely valuable, particularly for larger policies and periods of higher inflation.

Depending on your career stage and how much you have saved up for financial emergencies, you can decide whether to get a COLA rider for your disability insurance or whether it’s worth keeping.


Getting quality disability insurance should be the first financial chore for a doctor to complete. Contact one of our recommended insurance agents to get it done today!


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