Rachel Bodine graduated from college with a BA in English. She has since worked as a Feature Writer in the insurance industry and gained a deep knowledge of state and countrywide insurance laws and rates. Her research and writing focus on helping readers understand their insurance coverage and how to find savings. Her expert advice on insurance has been featured on sites like PhotoEnforced, All...

Full Bio →

Written by

Leslie Kasperowicz holds a BA in Social Sciences from the University of Winnipeg. She spent several years as a Farmers Insurance CSR, gaining a solid understanding of insurance products including home, life, auto, and commercial and working directly with insurance customers to understand their needs. She has since used that knowledge in her more than ten years as a writer, largely in the insurance...

Full Bio →

Reviewed by Leslie Kasperowicz
Former Farmers Insurance CSR

UPDATED: Oct 30, 2020

Advertiser Disclosure

It’s all about you. We want to help you make the right coverage choices.

Advertiser Disclosure: We strive to help you make confident auto insurance decisions. Comparison shopping should be easy. We are not affiliated with any one auto insurance provider and cannot guarantee quotes from any single provider.

Our insurance industry partnerships don’t influence our content. Our opinions are our own. To compare quotes from many different companies please enter your ZIP code on this page to use the free quote tool. The more quotes you compare, the more chances to save.

Editorial Guidelines: We are a free online resource for anyone interested in learning more about auto insurance. Our goal is to be an objective, third-party resource for everything auto insurance related. We update our site regularly, and all content is reviewed by auto insurance experts.

A cost of living adjustment is the increase in a wage or benefit that is applied on an annual or other regular basis that enables the wage or benefit to maintain the same level of purchasing power.cost of living adjustment

Why is a cost of living adjustment necessary?

In general everything becomes more expensive from year to year, this is known as inflation. While there are specific exceptions to this rule, such as consumer electronic products for example – these actually tend to become cheaper over time as mass production enables cost savings which are passed on to the consumer because of the competitive nature of the market, the general rule tends to overcome these exceptions.

This means that ordinary everyday costs rise on a gradual basis, a loaf of bread, a house (or rental payments), the fuel for your car, etc. will all be more expensive next year than this year assuming ordinary economic conditions.

A cost of living adjustment is not a raise per se, as it is designed to enable your wage to keep pace with inflation so that on a year-on-year basis your spending power remains the same, and you do not find yourself in a worse financial position than in a previous year.

Compare over 200 auto insurance companies at once!

 Secured with SHA-256 Encryption

Is a cost of living adjustment the same as an increase based on the current rate of inflation?

Not quite, if you receive a wage rise at the same level as the current rate of inflation (or the CPI for that matter) you will still be slightly worse off than the year before.

Why? Because the increase you receive will have tax deducted from it, and usually at the highest rate of tax that you pay. So a cost of living adjustment actually needs to be higher than the current rate of inflation in order for your purchasing power to keep pace with retail pricing.

Are there any other cost of living adjustments?

Yes, for people who have jobs that take them around the country or around the world – they may find that their employers pay temporary cost of living adjustments in order for their wages to retain the same purchasing power in a new location.

A common example of this would be for US Service people working in Japan, where local prices are substantially higher than in the US, depending on their pay grade, etc. a typical serviceman based in Japan will earn $300-$700 more than back home as a cost of living adjustment is paid during their time in Japan.

This allowance would be revoked when the employee returns to their normal place of work, or in the case of a serviceman when they are posted elsewhere.

Cost of Living Adjustment Additional Definitions