Something I ask my clients when discussing insurance, retirement and inflation is if they are aware of the “Big Mac Index.” The Economist magazine uses it to highlight purchasing parity between currencies in various countries. But it also illustrates the need for a cost of living riders in disability income insurance.
Because just like the cost of a Big Mac changes across currencies, it also changes over time:
1955 – 15 cents
1979 – 38 cents
1990 – 75 cents
2009 – 89 cents
2035 – $1.20 (based on the Consumer Price Index)
And an all-beef patty, special sauce, lettuce, cheese, pickles, onions on a sesame seed bun in the year 2035? It’s gonna cost you. So what is my point in all of this? Simple. A dollar today is not a dollar tomorrow. Because it won’t go as far when it takes 5 of them to pay the price for a $5.50 gallon of milk. You can blame it on the cost of living.
Always keep the shrinking dollar in mind when planning for the future. Enter: A cost of living rider. A cost of living rider is recommended for total disability insurance. It’s essentially a supplemental add-on that “rides” with your plan.
A cost of living rider ensures that your disability plan amount keeps up with the cost of living, in order to provide a salary equal to yours today, in cost-of-living-adjusted dollars. Cost of living riders are especially helpful when you still have a significant amount of time (20-30 years) left on your policy’s plan for your covered amount to “decay” as the cost of living increases.
Be sure to ask your independent insurance broker about a cost of living rider when purchasing your disability insurance plan(s). And you’ll also want to revisit your life insurance policy every couple of years to make sure it keeps up with your future needs. You’ll be glad you did, considering that by 2035, a single postage stamp will cost over $1.