Frank is shopping for a disability income policy. Which of the following features would most likely reduce the premium he pays for the policy?

• A. Choosing a longer elimination (waiting) period before benefits begin
• B. Adding a cost-of-living adjustment (COLA) rider
• C. Opting for a shorter benefit period
• D. Selecting a higher monthly benefit amount

Answer: (A)

Verified step by step guidance

1. Understand the concept of a disability income policy: This type of insurance provides income replacement if the policyholder becomes unable to work due to a disability. Premiums are influenced by various factors, including elimination periods, benefit periods, and additional riders.
2. Analyze the elimination (waiting) period: A longer elimination period means the policyholder waits longer before receiving benefits, which reduces the insurer's risk and typically lowers the premium.
3. Evaluate the cost-of-living adjustment (COLA) rider: Adding a COLA rider increases the premium because it adjusts benefits for inflation, ensuring the policyholder's purchasing power remains stable over time.
4. Consider the benefit period: Opting for a shorter benefit period reduces the insurer's liability, which can lower the premium. However, this also limits the duration of income replacement for the policyholder.
5. Assess the monthly benefit amount: Selecting a higher monthly benefit increases the premium because the insurer is committing to pay more in the event of a claim. Lowering the benefit amount would reduce the premium.