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What is a COLA Rider in Physician Disability Insurance?

Inflation has driven up the cost of everything from gas to food to everyday goods. So any money you have coming in needs to keep up with rising prices. If you’re paying for a disability insurance policy, chances are the monthly benefits you’d claim if you become disabled wouldn’t match the cost of inflation. The COLA rider in a physician disability insurance policy was designed specifically to solve for that.

What is a COLA Rider in a Disability Insurance Policy?

A cost-of-living-adjustment rider is an add-on to your disability insurance policy that will help your benefits keep up with the cost of inflation. The rider can increase your benefit by the percentage of the current inflation rate, so you’re not getting less of a payout each year as the cost of living rises. There are a few different types of COLA disability insurance riders that all calculate the percentage increase applied to your monthly or yearly payout differently.

Fixed COLA Rider

Fixed COLA riders offer a specific fixed percentage increase each year on your disability insurance benefit. You can find 1%-3% increases, all the way up to 10% increases that will raise your benefit on the anniversary of your policy. For example, if you get $1,500 in insurance benefits each month but you have a COLA rider in place, after a full year your payments will increase to $1,545. That increase continues each year in order to offset inflation.

Indexed COLA rider

Indexed COLA riders offer increased payments based on an index like the Consumer Price Index (CPI). The CPI gauges the rate of inflation by tracking everyday goods (i.e. food, gas prices, and utilities). The catch with this type of COLA is that if there is no inflation one year, your benefit payments will not rise that year.

Simple-Interest vs Compound-Interest COLA riders

A simple-interest rider is similar to the fixed COLA rider, but applies the same percentage by year. A compound-interest COLA rider applies to your accumulated benefit. This means a simple-interest rider may increase your benefit by say $500 each year, whereas a compound-interest rider will increase by $500 the first year and then $515 the second year, etc. If you have both options, a compound-interest rider is probably the way to go.

How to Calculate the Cost of Living Adjustment?

There are two ways to calculate a cost of living adjustment: level percentage or a CPI model, with the latter being the more common. A level percentage increase means your payment will increase by a set amount each year. The percentage increase ranges from anywhere between 1%-6%. When inflation is low or moderate, this may be the right option. However, if inflation is high, set increases may not be enough. If that’s the case, a CPI-based COLA may be the right move instead. It’s based on the Consumer Price Index, which is what you typically hear anytime anyone refers to inflation. It tracks everyday goods and services in order to understand inflation. Generally, this type of rider will be able to keep up with inflation a bit more.

How to Add COLA to a Physician Disability Insurance Policy

To add the COLA rider to your current disability insurance coverage, start with your current insurer. Contact your agent and ask them to help you add the rider to your policy. Be sure to ask about costs and clarify what type of COLA rider you’re getting. Many big-name insurers offer COLA riders, including MetLife and Ameritas.

Want to talk to a physician disability insurance specialist? You can do so for free here!

Should you get a COLA Rider?

Still on the fence whether to add a COLA rider to your physician disability policy? Consider the following points.

Makes sense for mid-career physicians

For many physicians, a COLA rider is well worth the cost. Most physicians make quite a bit of money and, in the event that they become temporarily or permanently disabled, they could find it difficult to maintain the same style of living if their disability payments aren’t high enough. The COLA rider ensures that the disability insurance benefits can actually help pay for your lifestyle, even as inflation increases.

May NOT make sense if you are close to retiring

One of the only times a physician may not consider adding a COLA rider is if they’re close to retirement, as their disability insurance policy may be ending at that point. In addition, younger doctors who want to keep their premiums as low as possible may not want to take on the additional cost of adding a COLA rider to your policy.

If inflation is low, you have other options

Finally, during times of low inflation, taking out a COLA rider can wait. There are better, less expensive options you can take out during these times.

Click here to talk to a disability insurance specialist today!

Options Beyond the COLA Rider

Typically, a COLA rider only increases your benefit by a small amount each year, so there are other options worth considering. Two other popular options include the AIB and FIO riders.

AIB rider

Rather than following inflation, the AIB rider (or the Automatic Increase Benefit) automatically increases your disability insurance coverage as your salary goes up. It’ll automatically increase your benefit for the first four-five years, and requires no additional work on your part. It is important to note here, however, that as your benefit increases, so will the premium you pay each month (insurance companies don’t give away anything for free). As your salary increases though, this may not be an issue. Just make sure you talk with your insurance agent to understand any stipulations your policy may come with. For example, there may be age restrictions or you may forfeit benefits if you opt to decline an automatic increase one year.

FIO rider

The Future Increase Option (FIO) rider is similar in many ways to the AIB rider. While it won’t automatically increase your benefit each year, it is a great option for younger physicians who want to keep premiums low until they can grow their career. When you want to increase your coverage, you do have to take action, but you won’t have to deal with automatically rising premiums each year.

Who Offers Disability Insurance
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States AvailableAK, AL, AR, AZ, CA, CO, CT, DC, DE, FL, GA, HI, IA, ID, IL, IN, KS, KT, LA, MA, MD, ME, MI, MN, MO, MS, NC, ND, NE, NH, NJ, NM, NV, NY, OH, OK, OR, PA, RI, SC, SD, TN, TX, UT, VA, VT, WA, WI, WV, WY
About

Ameritas Life is as reputable as any name in the insurance industry. However, it's actually a newcomer to the disability insurance space in comparison to its competitors. DInamic Foundation is its best disability insurance product for doctors. Policies are underwritten and issued by Union Central Life, its wholly-owned subsidiary.

Ameritas features a true own-occupation definition of disability. This provision benefits you if an accident or illness prevents you from practicing your specialty.

DInamic Foundation requires you to choose between non-cancelable coverage and guaranteed renewal. The maximum benefit period available is to age 70. Ameritas offers basic and enhanced residual disability riders. It also offers two different COLA riders.

Pros

  • True own-occupation provision.
  • Lowest premium amount.
  • Two COLA rider and residual disability options.
  • Various add-ons such a good health benefit, presumptive total disability benefit, COBRA premium benefit, partial disability benefit, and non-disabling injury benefit.

Cons

  • Slower customer service.
  • Lowest maximum policy benefit: $20,000 per month.
  • Must choose between non-cancelable coverage and guaranteed renewal.
  • For certain occupation classes, the own-occupation provision is only available for five years.

Read our full review of Ameritas's disability insurance policy.

States AvailableAK, AL, AR, AZ, CA, CO, CT, DC, DE, FL, GA, HI, IA, ID, IL, IN, KS, KT, LA, MA, MD, ME, MI, MN, MO, MS, NC, ND, NE, NH, NJ, NM, NY, OH, OK, OR, PA, RI, SC, SD, TN, TX, UT, VA, VT, WA, WI, WV, WY
About

As one of the largest, most trusted mutual insurance companies in America, Guardian Life is the Cadillac of its industry. Its disability insurance product, ProVider Choice, is a great fit for doctors. Policies are underwritten and issued by Berkshire Life, a wholly-owned stock subsidiary.

According to Guardian, total disability occurs when injury or illness prevents you from performing your occupation. For doctors, more than half of your income must come from hands-on patient care or surgical procedures to qualify.

Guardian’s true own-occupation definition of disability guarantees full benefits. It still applies if you’re able to maintain gainful employment in another occupation. In fact, you may be able to benefit if you can still practice your specialty with major limitations.

Coverage is non-cancelable and guaranteed renewable to age 70. You may elect 10-year, five-year and two-year benefit periods. Guardian offers 30-day, 60-day, 90-day, 180-day, 360-day and 720-day elimination periods.

Unlike other providers, Guardian features three cost-of-living adjustment (COLA) rider options. As for residual disability, Guardian offers both basic and enhanced partial riders.

Pros

  • True own-occupation provision.
  • Highest COMDEX score: 99.
  • Highest maximum policy benefit: $20,000 per month.
  • Simplified underwriting for up to $7,500.
  • Various options for benefit and elimination periods.
  • Various options for COLA and residual disability riders.
  • Various add-ons such as an automatic benefit enhancement, benefit purchase option, catastrophic disability rider, hospice care benefit, serious illness supplemental benefit and student loan protection.

Cons

  • Highest premium amount.
  • No presumptive total disability benefit.

Read our full review on Guardian's disability insurance policy.

States AvailableAK, AL, AR, AZ, CA, CO, CT, DC, DE, FL, GA, HI, IA, ID, IL, IN, KS, KT, LA, MA, MD, ME, MI, MN, MO, MS, NC, ND, NE, NH, NJ, NM, NV, NY, OH, OK, OR, PA, RI, SC, SD, TN, TX, UT, VA, VT, WA, WI, WV, WY
About

MassMutual has been a mainstay in the insurance game since 1851. MassMutual offers two disability insurance products, Radius and Radius Choice. Both feature provisions and add-ons that allow you to customize your coverage to meet specific needs. MassMutual helps you protect your income and retirement without relinquishing payment control.

MassMutual features a true own-occupation definition of disability. However, the provision is not part of your base policy. You must purchase it as an additional rider. With this provision in place, ‘total disability’ occurs when you cannot perform the main duties of your occupation. This requires you to be under a physician's care.

Both Radius and Radius Choice are non-cancelable and guaranteed renewable to age 65. Radius is conditionally renewable for life, while Radius Choice is only until age 74. Both policies have benefit periods available to ages 65 and 67, as well as two years, five years and 10 years. Radius Choice also offers a maximum benefit period to age 70. Both policies offer elimination periods of 60 days, 90 days, 180 days, one year and two years.

MassMutual offers one cost-of-living adjustment (COLA) rider. After your first year of disability, your monthly benefit increases by a set percentage each year. MassMutual offers one option with basic criteria that increases your chance of qualifying.

Pros

  • True own-occupation provision.
  • Various add-ons such as an automatic benefit enhancement, catastrophic disability rider, future increase option, presumptive total disability benefit and student loan protection.

Cons

  • Own-occupation provision sold separately.
  • Only one COLA rider and residual disability rider option.
  • No benefit purchase option, hospice care benefit or serious illness supplemental benefit.

Read our full review on MassMutual's disability insurance policy.

States AvailableAK, AL, AR, AZ, CT, DC, DE, FL, GA, IA, ID, IL, IN, KS, KT, LA, MA, MD, ME, MI, MN, MO, MS, NE, OH, OK, OR, PA, RI, SC, SD, TN, TX, UT, WA, WI, WV, WY
About

Ohio National’s disability insurance product is relatively new to the market. Still, it's among the best money can buy. ContinuON Income Solutions II allows you to customize your coverage without losing control of premium expenses.

Ohio National offers its true own-occupation provision as a rider. Regardless of occupation class, it does not come with your base policy. With Ohio National, total disability occurs when you're unable to perform the material and substantial duties of your specialty. To qualify, you must be under the care of a physician.

ContinuON Income Solutions II is guaranteed renewable on an annual basis. Coverage is non-cancelable as long as you consistently pay on time. Benefits periods include age 65, 67 and 70. Two-year, five-year and 10-year benefit periods are also available. Ohio National offers 60-day, 90-day, 180-day and one-year elimination periods.

Ohio National offers both a 3% and a 6% COLA rider. Policyholders may elect the basic or enhanced residual disability rider.

Pros

  • True own-occupation provision.
  • Excellent customer service.
  • Various add-ons such as a hospice benefit, survivor benefit and recurrent disability benefit.

Cons

  • Lowest physical and labs limit means simplified underwriting is only allowed for up to $3,000 per month.

Read our full review on Ohio National's disability insurance policy.

States AvailableAK, AL, AR, AZ, CA, CO, CT, DC, DE, FL, GA, HI, IA, ID, IL, IN, KS, KT, LA, MA, MD, ME, MI, MN, MO, MS, NC, ND, NE, NH, NJ, NM, NV, NY, OH, OK, OR, PA, RI, SC, SD, TN, TX, UT, VA, VT, WA, WI, WV, WY
About

Principal Life is among the most competitive providers in the disability insurance market. HH750 is an excellent option for doctors seeking a top-shelf disability insurance product. It features a wide variety of options that afford you maximum flexibility.

Principal offers both a true own-occupation and a modified own-occupation provision. A true own-occupation provision is the best bet for highly-skilled individuals like doctors. You benefit if you become unable to perform the material and substantial duties of your specialty. It still applies if you can maintain gainful employment in a different occupation.

Modified own-occupation is a watered-down version of the former. Frankly, it's only feasible if you’re cost is a concern. The definition of disability is the same, but you will not benefit if you can fulfill another occupation. Either way, both provisions are available as part of your base policy. You do not have to purchase an additional rider.

HH750 is non-cancelable and guaranteed renewable to age 65. Benefit periods are available to ages 65, 67 and 70, and for two years and five years. Principal features 30-day, 60-day, 90-day, 180-day and one year elimination periods.

Principal offers one cost-of-living adjustment (COLA) rider. After selecting a maximum benefit between 3-6%, it increases on a compound basis. Principal also offers one partial residual disability rider.

Pros

  • True and modified own-occupation provisions.
  • Advisor’s Choice Award for advisor support.
  • Available to those who only work 20 hours a week.
  • Simplified underwriting for up to $6,000 per month.
  • Various add-ons such as a benefit update rider, catastrophic disability rider, future benefit increase rider, presumptive total disability benefit, and serious illness benefit.

Cons

  • The modified own-occupation provision can be misleading. It can save you money now, but you will not receive as strong of benefits as true own-occupation.

Read our full review of Principal's disability insurance policy.

States AvailableAK, AL, AR, AZ, CA, CO, CT, DC, DE, FL, GA, HI, IA, ID, IL, IN, KS, KT, LA, MA, MD, ME, MI, MN, MO, MS, NC, ND, NE, NH, NJ, NM, NV, NY, OH, OK, OR, PA, RI, SC, SD, TN, TX, UT, VA, VT, WA, WI, WV, WY
About

The Standard is among the largest, most trusted providers in the disability insurance space. The company has several options, but Platinum Advantage is the most beneficial for doctors. It features built-in provisions and additional riders that maximize income protection.

The Standard's true own-occupation definition of disability is available as an additional rider. With this provision in place, ‘total disability’ occurs when you are unable to perform the substantial and material duties of your specialty. You must also be under the care of a physician to qualify.

Platinum Advantage is guaranteed renewable to age 67. To make your policy non-cancelable, you must purchase an additional rider. Benefit periods are available to ages 65 and 67, as well as two years, five years and 10 years. Elimination periods of 60 days, 90 days, 180 days and one year are available.

The Standard offers one cost-of-living adjustment (COLA) rider. After selecting a maximum benefit between 3-6%, it increases annually on a compound basis according to the Consumer Price Index. The Standard offers a basic residual disability rider.

Pros

  • True own-occupation provision.
  • Wide variety of options and strong coverage guarantee.
  • No-cost riders and benefits, such as the family care benefit.
  • Various add-ons such as an automatic increase benefit rider, benefit increase rider, catastrophic disability rider, family care benefit, premium waiver benefit, presumptive total disability benefit, student loan rider and survivor benefit.

Cons

  • Own-occupation and non-cancelable riders sold separately.
  • Only one COLA rider and residual disability rider option.
  • Lowest COMDEX score: 79.

Read our full review on The Standard's disability insurance policy.

Christopher Murray - Writer

Christopher Murray received a B.A. in English Literature and Gender Studies from Smith College. He now lives in Maine with his husband where he spends his free time watching reruns of The X-Files and dreaming of traveling in a refurbished VW Bus while writing the next Great American Novel. Chris has extensive writing and editing experience across a range of industries, but with a specialty in personal finance and investing.

Disability InsurancePublished March 26, 2022
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