Cost of Living Adjustments and Disability Insurance Coverage
Though your disability claim may be airtight, recovering benefits through your private disability insurance policy is not necessarily the “endgame.” What may seem to be an adequate recovery could be rendered inadequate years later if your benefits are not adjusted for cost of living increases. After all, one dollar in 2018 is worth significantly less than one dollar in the year 2000.
Disability policyholders who are concerned about the sufficiency of their coverage over the long-haul can purchase a supplemental cost of living adjustment (COLA) rider that will result in a steady increase in their benefits as time passes.
Let’s take a look.
Every insurer has different offerings, but there are certain shared features that are typical of many disability insurer offerings — particularly when it comes to COLA riders.
COLA riders can be broken down into various different types.
Fixed vs. Indexed
Fixed increases are pegged at a specific percentage (i.e., three percent) and typically apply on an annual basis, on the anniversary of the policyholder’s disability.
By contrast, indexed cost of living increases are pegged at a third-party index for cost of living, such as the Consumer Price Index (CPI). Indexed COLA riders may have a minimum that is lower than the fixed alternative but have a maximum that goes higher in the event that the third-party index fluctuates upward.
Simple vs. Compound Interest
Simple interest COLA riders apply the cost of living adjustment to the principal disability benefit amount every year. For example, if you receive $20,000 per year in disability benefits, then a simple interest COLA rider with a three percent fixed rate would increase that benefit amount by $600 every year.
Compound interest COLA riders apply the cost of living adjustment to the accumulated benefit amount. For example, if you receive $20,000 per year in disability benefits, then a compound interest COLA rider with a three percent fixed rate would increase that benefit amount by $600 in the first year, then $618 in the second year, and so on until the termination of benefits.
Insurance contracts and riders are often written in ways that are fundamentally ambiguous, and any confusion that the prospective policyholder may have regarding the terms of the policy may be further aggravated by misrepresentations made by the insurance agent.
For example, if you believe that you purchased a compound interest COLA rider based on an insurance agent’s representations, but the COLA rider was actually for “simple” interest increases, then you could sue and recover damages on the basis of a bad faith insurance claim.
It’s worth noting that under prevailing Illinois law, any genuine ambiguities in a disability insurance contract will be interpreted in a manner favorable to the interests of the insurance policyholder.
Contact an Experienced Chicago Private Disability Attorney for Legal Guidance
Bryant Legal Group, P.C. is a boutique insurance litigation firm with extensive experience advocating on behalf of policyholders in a variety of insurance disputes, including those that are centered around disability insurance conflicts. Our attorneys are knowledgeable about the various factors impacting policyholders in the wake of a disabling injury, illness, or other condition, and understand the importance of securing maximum benefits given the circumstances.
If you’ve had your disability benefits claim wrongfully denied or mishandled by your insurance carrier, or if you’re simply considering the submission of a claim, we encourage you to call Bryant Legal Group, P.C. at 312-626-9316 or to submit an online case evaluation form to connect with an experienced Chicago private disability attorney at our firm.