When evaluating an individual disability insurance policy, like physician disability insurance or CRNA insurance, one of the most misunderstood and often overlooked features is the Cost of Living Adjustment (COLA) rider.

Despite what the name might suggest, the COLA rider doesn’t increase a policy’s benefit each year it’s owned. Instead, it activates only after the insured has been on claim for at least 12 months. From that point forward, benefits are increased annually — either at a fixed rate (commonly 3% or 6%) or based on the actual Consumer Price Index for Urban Consumers (CPI-U).

This article explains how the COLA rider works, what the current research shows, and when it may or may not make sense to include it in a disability insurance policy.

How COLA Riders Work

The COLA rider adjusts monthly disability benefits to account for inflation, but only after the first full year on claim. After that point, the benefit is increased annually, usually by a fixed percentage or tied to the rate of inflation.

Insurers may offer COLA calculations based on either simple interest or compound interest. For long-term claims, a compound COLA can result in a significantly higher total payout than a simple COLA rider.

Why COLA Matters for Long-Term Claims

Disability insurance policies designed for high-earning professionals often have long benefit periods—typically to age 65 or 67. That means the purchasing power of a monthly benefit could be significantly eroded by inflation if it’s not adjusted annually.

This is particularly relevant for policies purchased early in a career, such as medical resident disability insurance or disability policies for young CRNAs or doctors, where the possibility of a multi-decade claim makes inflation protection far more consequential.

Oxford economist Hamish Low, in a 2020 review, notes that underinsurance due to inflation and long claims is a more serious concern than occasional overpayment. He concludes that policies should prioritize long-term adequacy over short-term screening precision.

Supporting this, data from the Society of Actuaries show that younger individuals on claim tend to have longer durations, making inflation protection especially critical in policies like medical resident or early-career physician disability insurance.

COLA Rider Cost vs. Value

The COLA rider is typically among the more expensive optional features—often increasing premiums by 20% to 40%. However, over a long-term disability claim, it may provide significantly more in additional benefits than it costs in premiums.

A major study by economists David Autor, Mark Duggan, and Jonathan Gruber found that benefit structure—including inflation protection—has a measurable effect on claim outcomes and financial stability for policyholders.

Meanwhile, the Bureau of Labor Statistics reports that most group long-term disability plans cover only 60% of base salary and do not include COLA. Without an inflation adjustment, the real value of that income could fall by 30–40% over a 15–20 year claim period.

When to Skip COLA Riders

There are some cases where the COLA rider may not be necessary or cost-effective:

• Older applicants, such as those over 45, with shorter working horizons
  
• Policies with a limited benefit period (e.g., 5 years), where COLA might only apply to the last few years
  
• Budget-conscious buyers, who may benefit more by securing stronger core policy features first
• The COLA rider can cost about 40% of the total premium amount. As such, it is important to consider if it makes sense and fits your needs and budget.
  

It’s also worth noting that COLA can usually be removed later without underwriting. However, adding it later typically requires medical underwriting, which could be a hurdle if health has changed.

COLA and Other Coverage Types

Research by David Salkever (Johns Hopkins University) found that the availability and quality of employer-provided disability benefits—many of which lack inflation protection—can significantly influence claim costs and durations.

That’s why many professionals who already receive employer group coverage still choose to supplement with individual policies, particularly physician disability insurance or CRNA insurance, where income replacement needs often exceed group policy caps.

Further, a Gallagher survey of physician employers showed that while 71% offer short-term disability or salary continuation plans, long-term options with COLA riders are rare. This leaves a potential gap for inflation-exposed benefits.

COLA Riders: The Bottom Line

For anyone considering a long-term disability insurance policy—whether it’s for a CRNA, a physician, or a medical resident—the COLA rider offers protection against a slow but persistent risk: inflation.

If a claim lasts 10, 20, or 30 years, the erosion of purchasing power can be dramatic. The COLA rider ensures that the financial protection purchased today retains its value tomorrow, and in the decades that follow.

Request a Personalized Quote Comparison

Set for Life Insurance helps professionals—including physicians, CRNAs, and medical residents—design customized disability insurance strategies that meet their long-term income protection goals.

Request your personalized quote comparison today: https://setforlifeinsurance.com/request-a-quote/