Massachusetts Health & Accident Insurance Practice Exam

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What does COLA stand for in insurance terms?

Cost-of-Living Adjustment
Comprehensive Life Adjustment
Certified Life Oversight Allocation
Continuous Liability Operational Assessment

The correct answer is: Cost-of-Living Adjustment

In the context of insurance, COLA stands for Cost-of-Living Adjustment. This term refers to an increase in benefits or payments, designed to keep up with inflation and ensure that the purchasing power of the policyholder is maintained over time. Many insurance policies, particularly those related to disability income and life insurance, incorporate COLA provisions to adjust payouts in accordance with changes in the cost of living. This adjustment is crucial, as it helps protect beneficiaries from inflation's eroding effect on the value of received benefits, thereby providing more security and financial stability over the life of the policy. The other provided options do not accurately reflect common terminology used in insurance. Therefore, understanding that COLA specifically relates to maintaining benefits in line with economic changes clarifies its significance in insurance practices.