What is true about a cost of living rider?

A cost of living rider is designed to help an insurance policy keep pace with inflation, typically by tying the increase in coverage to a recognized inflation index, such as the Consumer Price Index (CPI). This means that as inflation occurs and the cost of living increases, the face amount of the policy will similarly increase, providing additional protection to the policyholder.

The true aspect of the cost of living rider reflects that it generally requires the payment of an additional premium in order to benefit from the increased coverage linked to inflation. This is essential for policyholders who want to ensure that their life insurance payout will maintain its purchasing power over time.

While other options mention aspects related to fees and potential decreases based on CPI changes, these do not accurately capture the essence of how a cost of living rider functions. The primary purpose, and thus the correct understanding here, is that the rider increases the face amount in line with a chosen index, providing extra benefit as economic conditions change.