Inflationary Adjustment 通貨膨脹調整

Cost of Living Adjustment (COLA) Benefit 生活指數調整利益

Inflation reduces the purchasing power of a fixed sum insured. A policy with a HK$1 million sum insured may still pay HK$1 million in 20 years' time, but that money may cover far less by then. The COLA Benefit aims to reduce this loss of real value.

The benefit is normally added to a basic policy as a rider. It raises the insurance benefit at intervals stated in the policy, commonly each year, according to changes in a specified index. A consumer price index is the usual choice. In Hong Kong, the Census and Statistics Department compiles the Consumer Price Indices, but the policy terms decide which index applies and how the increase is calculated. Increases usually have a cap, such as a maximum percentage each year. If the index rises by more than the cap, the sum insured rises only by the capped amount, so inflation may not be fully offset. The same idea can apply to income benefits such as disability income.

An increase generally needs no fresh evidence of insurability, so the insured can usually receive it even if their health has worsened. The policyholder generally pays extra premium for the increase, usually based on the insured's age at the time of the increase. The policyholder can normally decline a particular increase, but some policies stop future automatic increases after a refusal unless evidence of insurability is provided. Increases also usually stop once the insured reaches a stated age. Because increases are not underwritten again, insurers use conditions such as caps to control anti-selection and underwriting risk.

For the exam, distinguish this benefit from the guaranteed insurability option. Under both, added cover generally needs no evidence of insurability. However, the COLA Benefit adjusts automatically with a specified index, whereas under the guaranteed insurability option the policyholder decides on specified option dates whether to buy additional cover, and the added amount is not linked to an inflation index.