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ex3-6 kelly 2

Returning to Kelly from an earlier example, her basic disability policy costs $1,500 a year and provides a monthly benefit of $4,000. Adding the COLA rider will increase her premium by $150 to $300 per year. If she pays premiums for 10 years and then becomes disabled, the following illustrates her costs with and without the rider before her disability occurs: Premiums with COLA rider: $16,500 to $18,000 Premiums without COLA rider: $15,000 Kelly is disabled for a total of five years. Assume the policy with the COLA rider provides a flat 5% annual increase, which goes into effect at the beginning of the second year of disability. Here's the comparison of the total benefits Kelly will receive: With COLA rider: $212,172 benefits paid Without COLA ride: $192,000 benefits paid The difference is $20,172 The figures show that for a five-year disability, the benefits far outweigh the cost. Naturally, in any given case, the figures will change with the situation. Imagine an insured, such as Kelly, who only pays premiums for two years before being disabled—an outlay of $3,300 to $3,600—and receives more than $200,000 in disability benefits.