The companies that offer AL policies realize that the flexibility to increase the face amount is not that significant if increases require evidence of insurability. Consequently, most companies offering AL policies issue them with guaranteed purchase or insurability riders. This provision allows the policyowner to periodically purchase (e.g., every three to five years) a limited amount of additional coverage without proving insurability. In general, a purchase option expires if the policyowner does not exercise it when it matures, but the later options remain open without proof of insurability. Any desired increase in face amount beyond the limits set in the guaranteed insurability option will require evidence of insurability.
Do not confuse the guaranteed insurability option with the Cost-Of-Living Adjustment (COLA) provision that most companies also offer in their AL policies. The companies generally grant the COLAs without proof of insurability. In some cases, the insurer increases the policy face amount automatically each year by the increase in the Consumer Price Index (CPI) unless the policyowner elects otherwise. The insurer also correspondingly adjusts the premium payment plan upwards. In other policies, the insured has the option to periodically (e.g., every three years) increase the face amount by the change in the CPI since the last adjustment period. In contrast with the guaranteed insurability option, if the policyowner declines the additional coverage at any time, the insurer will permit future COLA increases only after the insured proves insurability.
Reproduced with permission. Copyright The National Underwriter Co. Division of ALM