The inflation option, also known as a cost of living adjustment, on a disability insurance policy is one of the most important parts in deciding how to structure your coverage.  The option you choose will have a big effect on how much your policy’s maximum benefit amounts will grow to in the future.  Even the “small” difference between choosing a 3% or 6% inflation benefit can amount to a difference of hundreds of thousands of dollars over the life of the policy.  Guardian, who offers the best disability contracts in the industry, offers the following COLA options:

-3% compound
-6% maximum compound
-3% compound with a 4-year delay

The 6% compound maximum benefit has a baseline adjustment of 3% per year, but can be up to 6% in the event that the CPI-U adjustment calculation is greater than 3%.

Let’s look at an example of a physician with a $15,000 maximum per month benefit, with 3% compound versus 3% simple interest to see the difference over many years:

3% compound

Year 1 – $15,000 per month benefit
Year 10 – $20,158 per month
Year 20 – $27,091 per month
Year 30 – $36,408 per month

3% simple

Year 1 – $15,000 per month benefit
Year 10 – $19,500 per month
Year 20 – $24,000 per month
Year 30 – $28,500 per month

To get a quote for a disability insurance policy, please complete the short form below, give us a call at 1-800-571-2980 from 9 AM to 9 PM eastern time, or send us an e-mail at Info@terminsurancebrokers.com 24 hours a day.  We can help design a disability policy to suit your personal needs and budget.  Due to the number of factors used to create a disability insurance quote, there is currently no way for us to offer instant online quoting.