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Most Americans Can Be Fully Insured for Less Than 20% of Their Income

Most Americans Can Be Fully Insured for Less Than 20% of Their Income

It costs a typical person $10,010 per year to be fully insured, our analysis shows.
Family looking at its insurance costs.
Family looking at its insurance costs. Source: Getty Images

ValuePenguin calculated the cost of four common types of insurance to assess the financial burden that being fully insured poses to most Americans. Based on a comparison of national and statewide median incomes and the cost of car, homeowners or renters, life and health insurance, ValuePenguin determined that most Americans can be fully covered for less than 20% of their income.

For seniors, the cost of coverage is more expensive. Their limited incomes combined with soaring costs of life insurance mean that being fully covered is ultimately more expensive than it is for most people. Most seniors pay 23% of their income toward insurance.

We also accounted for the cost of flood insurance to see how unaffordable purchasing coverage would be for a typical household. The cost of insurance for those most in danger of flood damage is only slightly higher than it is for most people. After adding a flood insurance policy, the total cost of insurance only increased by 1% relative to an individual's income.

Key findings

The cost of insurance takes up 14% of a person's income per year, but in some states, the cost can exceed 20%

Americans can expect to pay $10,010 per year on their insurance. Renters, we found, pay slightly less for full coverage than homeowners do. Since renters insurance doesn't cover the structure of a rented home, the risk is smaller for insurers and the cost is cheaper for policyholders. Most renters pay 12% of their earnings toward insurance over the course of one year.

Health insurance is the most expensive coverage for most people. Marketplace policies amount to 59% of an individual's insurance expenses, while data from Kaiser Family Foundation (KFF) on the average annual premiums (not counting deductibles) for employer-sponsored health insurance suggest that the cost may be higher for those who get coverage through their workplace.

Auto insurance coverage is the second most expensive form of insurance behind health, though insuring one's car only costs a fraction of what most health insurance policies cost. Car insurance takes up 16% of a typical person's yearly insurance expenses. Homeowners insurance trails at 14%, and life insurance comes behind at 10% of the overall cost of insurance per year.

On average, renters insurance only makes up 3% of an individual's yearly insurance expenses.

Of course, like the cost of insurance, the percentage of one's income a policyholder can expect to pay for coverage varies depending on the state. Costs relative to income are the highest in Michigan, West Virginia and Louisiana. In these states, a person can expect to devote more than 20% of their income to insurance costs.

The high cost of car insurance is primarily to blame in Michigan. In the state, full coverage car insurance costs more than $4,000 per year — much higher than in any other state. In West Virginia and Louisiana, exceedingly high health insurance costs — and an expensive average cost of auto insurance, in Louisiana's case — combine with low median incomes to create a greater insurance burden for most people.

Conversely, in New Hampshire, Washington and Maryland the cost of insurance is less than 10% of the typical person's income. Health insurance tends to be more affordable than average in these states: Coverage only costs $4,292 per year, which is more than $1,000 cheaper than the national average. Moreover, in these states, the median incomes are all over $85,000 per year.

Rank
State
Household income
Insurance cost
Percent of income to insurance
1Michigan$65,776$14,71822%
2West Virginia$55,592$12,32222%
3Louisiana$58,702$12,44821%
4Mississippi$50,272$9,70819%
5Oklahoma$60,589$11,55819%
6Florida$63,007$11,85319%
7Alabama$57,424$10,38218%
8South Dakota$66,230$11,51817%
9Missouri$65,607$11,09517%
10South Carolina$61,378$10,36517%
11Kentucky$61,212$10,27017%
12Texas$67,949$11,14016%
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Table is sorted by the percentage of income toward insurance.

Reduced health care costs for seniors can't offset higher life and car insurance premiums

The cost of insurance is comparably higher for seniors than it is for most Americans. We found that the average cost of insurance for seniors amounts to 23% of their annual income. This increase is driven by lower incomes for most people in this age group and higher life and car insurance prices.

Health insurance costs for the typical senior are far lower than $5,940, the average cost of health insurance for younger people. The cost of coverage for seniors is $2,179 per year. Public health insurance costs make up just 20% of a senior's annual insurance budget.

The cost of life insurance is much higher for seniors compared to younger people. We found that the cost of a term life policy takes up 51% of the expenses a typical senior would pay for insurance per year. This is more than five times greater than the average cost of life insurance for those aged 25 to 60.

Seniors also face slightly higher car insurance premiums from most companies in most states. The average cost of car insurance for seniors is $1,738 per year — which is $102 more expensive per year than what most people pay. Car insurance totals 16% of the overall cost that the demographic pays for insurance.

As with younger people, seniors who choose to rent pay less for insurance: 20% of their income.

Rank
State
Household income (seniors)
Insurance cost (seniors)
Percent of income to insurance (seniors)
1Louisiana$38,662$12,26332%
2Mississippi$36,809$10,84329%
3Michigan$46,380$13,35729%
4Kentucky$40,349$11,60029%
5Arkansas$37,863$10,63228%
6West Virginia$39,680$10,96028%
7Oklahoma$43,501$11,81727%
8Alabama$41,644$11,26127%
9Missouri$43,329$11,45326%
10South Carolina$45,115$11,75026%
11Montana$45,579$11,55725%
12Rhode Island$49,749$12,50325%
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Table is sorted by the percentage of income toward insurance.

Flood insurance may be more affordable for at-risk properties than most people think

The threat of flood damage isn't high for most people. While mortgage lenders require their borrowers to purchase homeowners insurance on their properties, flood insurance is only required by lenders for homes located in areas that the Federal Emergency Management Agency (FEMA) has designated as high-risk.

How does flood insurance work? A homeowner will likely purchase flood coverage from the National Flood Insurance Program (NFIP), although private policies are available. A policy provides up to $250,000 of dwelling coverage and $100,000 of contents protection. The policyholder pays a separate premium and deductible from their homeowners insurance.

This is why about 6% of owner-occupied homes have flood insurance, according to an analysis of the NFIP's policy data. Additionally, the cost of coverage can be high. ValuePenguin found that the average cost across all states is $734 per year — an unwelcome expense for homeowners whose homes aren't necessarily in the most high-risk category.

However, the cost may not be as onerous as it appears for many people. We found that purchasing a flood insurance policy results in a 1% increase to the overall cost of insurance for most people. In the most expensive state for flood insurance, Vermont (where just 1.4% have policies), adding flood insurance to a mid-risk home results in a 4% increase to one's overall cost of coverage during a single year.

Rank
State
Percentage of income to insurance with flood coverage
Increase in insurance costs relative to income
1Alabama19%1%
2Alaska14%1%
3Arizona17%1%
4Arkansas17%2%
5California14%1%
6Colorado12%1%
7Connecticut15%2%
8Delaware15%1%
9Florida20%1%
10Georgia16%1%
11Hawaii11%1%
12Idaho14%1%
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Asterisks signify the states with the highest number of flood insurance policies per owner-occupied homes.

Methodology

ValuePenguin identified the median incomes for seniors older than 65 years old and people aged 25-44 using the Census Bureau's 2019 American Community Survey (ACS). We found the combined cost of insurance for the following forms of coverage:

  • Full coverage auto
  • Homeowners or renters
  • Marketplace health insurance
  • Twenty-year term life insurance

For our senior health care analysis, our profile had Medicare Parts A, B and D. For Part B, whose costs are determined by income, our profile was only responsible for the base premium. For Part D, our profile would have only had to pay $33.06, the minimum base premium according to the Centers for Medicare and Medicaid Services (CMS).

To find the cost of auto insurance for most people, we found rates across every ZIP code in each state for a 30-year-old and 65-year-old driver with no accident history and average credit.

Our homeowners insurance rates reflect the cost to insure a median-value home in each state.

Our life insurance refers to the average cost of coverage for a 20-year term life policy for those younger than 65 years old. For seniors, a separate rate was used.

ValuePenguin's analysis used insurance rate data from Quadrant Information Services. These rates were publicly sourced from insurer filings and should be used for comparative purposes only — your own quotes may be different.