What Are the Most Popular Types of Personal Insurance and How Much Are They Worth?

Nadav Shemer
What Are the Most Popular Types of Personal Insurance and How Much Are They Worth?
Insurance, as they say, is something you buy when you don’t need it. No insurer will agree to cover you for a prior car accident or break-in or a pre-existing illness. The purpose of insurance is to protect yourself against the risk of financial losses that may result from future damage to you or your property, or from liability for damage or injury caused to a third party.

Americans are by far the world’s biggest consumers of insurance, accounting for 28.2% of total world premiums, according to the Insurance Information Institute’s 2019 Insurance Fact Book. In 2017, Americans spent a total of $1.334 trillion on insurance products, at a rate of $4,074 per capita. Life & health insurance accounted for 52% of all direct premiums written, and property & casualty (both personal and commercial) for the remaining 48%.

In the United States, there are dozens of different lines of insurance available for purchase, from staples like life and auto to the less-known like ocean marine, boiler and machinery, and private flood insurance. In this article, we look at the five most common forms of personal insurance by direct premiums written – and the fastest-growing line.

These are the 5 most common types of personal insurance:

1. Annuities Insurance ($316.20 billion)

Annuities insurance is a line of insurance issued by life insurance companies that provides payments while the policyholder (or annuitant) is still alive. Life annuities are commonly used to provide a guaranteed income in retirement, right until the policyholder’s death. Typically, the policyholder pays into the annuity on a periodic basis while they are working. However, the policyholder may also buy the product in a lump sum upon retirement. Annuity products are often packaged together with life insurance, providing guaranteed retirement income and death benefit.

It can be helpful to think about a life annuity as a form of longevity insurance which protects the policyholder against the risk of outliving their own savings. As of 2018, the average American life expectancy is 78.8 years, around 12 years past the standard retirement age. Some people have pension plans with guaranteed lifetime benefits. For others, there is the option of purchasing a life annuity.

2. Auto Insurance ($222.23b)

According to a Pew survey, the United States has the second-highest rate of car ownership in the world (after Italy), with almost 9 in 10 American adults owning at least one vehicle. Given this statistic, it’s no surprise auto insurance is the second-most common type of personal insurance and the most-common type of P&C insurance in the U.S. by direct premiums written.

Private passenger auto insurance can be broken down into 2 segments. Liability insurance, which is compulsory (with varying minimum coverage) in every state except New Hampshire, accounts for 60.2% of all premiums written. Collision and comprehensive insurance, which covers the policyholder for damage to their own vehicle and is completely voluntary, accounts for the remaining 39.8% of premiums.

3. Accident & Health Insurance ($190.85b)

When the Affordable Care Act (Obamacare) came into effect in 2014, it stipulated that most people (with minor exceptions) who weren’t eligible for Medicare were obligated to purchase private health insurance. Under the later Tax Cut and Jobs Act, the penalty for not having health care was reduced to $0 at the start of 2019. Therefore, we now have a strange situation where Americans are legally required to have health insurance but face no punishment for breaking the law. 

Although the penalties have been removed, that doesn’t mean it’s a good idea to avoid coverage. If you don’t qualify for Medicare or some form of Medicaid or government-funded public health initiative, private health insurance is the only way to cover yourself for medical bills and avoid excessive out-of-pocket payments. At last count, private health insurance accounted for 34% of total American health expenditure, with Medicare, Medicaid, and other government spending accounting for 43%, and out-of-pocket payments and third-party programs for the remainder.

4. Life Insurance ($184.33b)

It might not be pleasant to dwell on, but life insurance is a necessity for anyone with financial dependents. By its definition, life insurance is a contract between an insurer and a policyholder whereby the insurer guarantees payment of a death benefit to named beneficiaries upon the death of the policyholder.

There are two major types of life insurance in the United States: term and permanent. Term insurance pays a benefit if the policyholder dies during the term of the policy (providing the policyholder kept up payments). Permanent is a broad term that covers several subcategories, such as universal and whole life. As a general rule, the covered period never ends – even if the policyholder lives past 100.

5. Homeowners Insurance ($82.81b)

Following auto insurance, the second most common line of property & casualty insurance is property insurance: encompassing things like homeowners insurance, renters insurance, flood insurance, and earthquake insurance. According to the Insurance Information Institute, around 95% of American homeowners have homeowners insurance.

Standard home insurance covers:

  • Damage to the structure of the home;
  • Damage to personal belongings in the home;
  • Liabilities stemming from bodily injury or property damage to other people on your property; and
  • Living expenses, for when your home becomes uninhabitable due to an insured incident.

Increasingly, property insurance companies are modernizing their coverage to cover things like home office equipment and Airbnb rentals.

Fastest-Growing Line: Travel Insurance

Contrary to the stereotype, Americans are growing thirstier for international travel. According to a report by British travel insurance company Get Going based on data from the UN World Tourism Organization, Americans spent $135 billion, or $413 per capita, on international travel in 2017. Although the U.S. lags behind the likes of Germany, the UK, and Canada on per-capita spending, it is catching up fast. According to Get Going’s report, Americans spent 9% more in 2017 than the previous year.

A distinctive aspect of travel insurance is that it straddles both property & casualty and accident & health coverage, according to the American Academy of Actuaries Travel Insurance Task Force. Given the increasing expenditure on travel, it’s no surprise Americans are also spending more on travel insurance – with the market size standing at $2.2 billion in mid-2019, up 2.8% per year over a five-year period.

Deciding Which Insurance to Buy

The purpose of insurance is to protect yourself against financial loss. You need life insurance if you have dependents, auto insurance if you own a car, and homeowners insurance if you own a home. If you don’t fit into any of those categories, you might not need the accompanying coverage – but you may want to consider alternative forms of coverage, such as renters insurance if you rent. And remember: before buying or renewing an insurance policy, always shop around to find the best deals.

Nadav Shemer
Nadav Shemer specializes in business, tech, and energy, with a background in financial journalism, hi-tech and startups. He enjoys writing about the latest innovations in financial services and products.