Adjustment Income

Adjustment income is income paid to the dependent(s) of a primary wage earner in the event that the primary wage earner passes away. These funds, usually provided through life insurance policies, represent income above and beyond the death benefit and are intended to provide financial support while the beneficiary adjusts to becoming self-sufficient.

Adjustment income is a benefit that provides financial assistance to a beneficiary once the primary wage earner has passed away. A common example of adjustment income would be funds provided to a widow upon the death of her spouse. This income is intended to help cover expenses until the beneficiary is self-sufficient, allowing an individual the necessary time to recover emotionally and to receive career counseling and job training, if necessary.

As a hypothetical example, let’s assume that a 50-year-old primary wage earner is making $80,000 annually and has good life insurance coverage with an adjustment income option. Meanwhile, the spouse works part time from home and makes $20,000 per year. In the event that the primary wage earner passed away, the life insurance coverage provides adjustment income until the spouse can recover emotionally, find a full-time job, and make any other lifestyle adjustments.

In addition to the life insurance coverage they provide to their employees, many companies offer adjustment income coverage. The adjustment income benefit may be company paid, or employees may choose to pay for themselves. The names of the adjustment income coverage may be as varied as the companies themselves, and include such labels as Family Adjustment Coverage or Family Income Coverage, among others.

In most cases, the coverage will pay a beneficiary a certain percentage of the primary’s wage earner’s monthly salary. For example, a surviving spouse may receive monthly payments of 20 percent of the deceased’s monthly salary. The period over which the payments are made depends on who receives the benefit; the payments could be for life, until remarriage, or other terms stated in the individual policy.

By contrast, a death benefit is a payout to the beneficiary of a life insurance policy, annuity or pension when the insured or annuitant dies. A death benefit may be a percentage of the annuitant's pension. For example, a beneficiary might be entitled to 65 percent of the annuitant's monthly pension at the time the annuitant dies. Alternatively, a death benefit may be a large lump-sum payment from a life insurance policy. The size and structure of a pension or life insurance policy's payment, which is also known as a survivor benefit, are determined by the type of contract the annuitant held at the time of death.