Utah Life Producer Practice Exam

A cost-of-living adjustment is a feature provided by many annuities to help protect against inflation. This adjustment allows the periodic payments from the annuity to increase over time, typically in line with the rate of inflation or a specified percentage increase. By incorporating this feature, the purchasing power of the annuity payments is maintained, which is essential for recipients who rely on these payments for their long-term financial needs.

Without such adjustments, fixed payments may lose value in real terms as the cost of goods and services rises over time due to inflation. This means that even though the nominal payment amount remains the same, it may not be sufficient to cover the same level of expenses in the future. By ensuring that payments increase to reflect inflation, annuities with cost-of-living adjustments support individuals in maintaining their quality of life despite rising prices.