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

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

The cost of coverage is higher for seniors. Because of their low incomes and the rising cost of life insurance, being fully insured is ultimately more expensive for them than it is for most people. The average senior spends 23% of their income on insurance.

We also factored in the cost of flood insurance to see how prohibitively expensive purchasing coverage would be for the average household. The cost of insurance for those most vulnerable to flood damage is only slightly higher than for the general public. When a flood insurance policy was added, the total cost of insurance increased by only 1% in relation to an individual's income.

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 for insurance each year. We discovered that renters pay slightly less for full coverage than homeowners. Renters insurance does not cover the structure of a rented home, so the risk for insurers is lower and the cost for policyholders is lower. Over the course of a year, most renters pay 12 percent of their earnings toward insurance.

Most people's health insurance is the most expensive type of coverage. Marketplace policies account for 59 percent of an individual's insurance expenses, whereas Kaiser Family Foundation (KFF) data on average annual premiums (excluding deductibles) for employer-sponsored health insurance suggest that the cost may be higher for those who obtain coverage through their workplace.

Although auto insurance is the second most expensive type of insurance after health insurance, it is only a fraction of the cost of most health insurance policies. Car insurance accounts for 16% of a typical person's annual insurance costs. Homeowners insurance trails at 14%, and life insurance trails at 10% of the total cost of insurance per year.

Renters insurance accounts for only 3% of an individual's annual insurance costs.

Of course, the percentage of one's income that a policyholder can expect to pay for coverage varies by state, just like the cost of insurance. Michigan, West Virginia, and Louisiana have the highest cost-to-income ratios. In these states, a person can expect to pay more than 20% of their income for insurance.

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

In New Hampshire, Washington, and Maryland, however, the cost of insurance is less than 10% of the average person's income. In these states, health insurance is more affordable than the national average: Coverage is only $4,292 per year, which is over $1,000 less than the national average. Furthermore, the median income in these states is more than $85,000 per year.

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

Insurance is more expensive for seniors than for the majority of Americans. We discovered that the average cost of insurance for seniors is 23% of their annual income. This increase is being driven by lower incomes for the majority of people in this age group, as well as higher life and auto insurance prices.

The average senior's health insurance costs far less than the $5,940 average cost of health insurance for younger people. The annual cost of coverage for seniors is $2,179. Only 20% of a senior's annual insurance budget is spent on public health insurance.

Seniors pay significantly more for life insurance than younger people. We discovered that the cost of a term life policy accounts for 51% of the annual insurance expenses for a typical senior. This is more than five times the average cost of life insurance for people between the ages of 25 and 60.

Seniors are also subject to slightly higher car insurance premiums from the majority of companies in the majority of states. The average cost of car insurance for seniors is $1,738 per year, which is $102 more than what the majority of people pay. Car insurance accounts for 16% of the total cost of insurance paid by this demographic.

Seniors who choose to rent, like younger people, pay less for insurance: 20% of their income.

Table is sorted by the percentage of income toward insurance.

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

For most people, the risk of flood damage is low. While mortgage lenders require their borrowers to purchase homeowners insurance on their properties, flood insurance is only required for homes located in areas designated as high-risk by the Federal Emergency Management Agency (FEMA).

According to an analysis of NFIP policy data, approximately 6% of owner-occupied homes have flood insurance. Furthermore, the cost of coverage can be prohibitively expensive. According to LowCostInsurance, the average annual cost across all states is $734 — an unwelcome expense for homeowners whose homes aren't necessarily in the most high-risk category.

However, the cost may not be as high as many people believe. We discovered that purchasing flood insurance adds 1% to the overall cost of insurance for the majority of people. Adding flood insurance to a mid-risk home in Vermont, the most expensive state for flood insurance (where only 1.4 percent have policies), results in a 4 percent increase in one's overall cost of coverage in a single year.

Asterisks signify the states with the highest number of flood insurance policies per owner-occupied homes.

Methodology

Using the Census Bureau's 2019 American Community Survey, LowCostInsurance calculated the median incomes for seniors over the age of 65 and people aged 25-44. (ACS). We discovered the total cost of insurance for the following types of coverage:

• Auto insurance with full coverage
• Homeowners or renters
• Marketplace health insurance
• Term life insurance for a period of twenty years

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

To determine the average cost of auto insurance, we looked at rates in 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 are based on the cost of insuring a typical home in each state.

Our life insurance policy refers to the average cost of coverage for a 20-year term life policy for people under the age of 65. A separate rate was used for seniors.

The insurance rate data used in LowCostInsurance analysis came from Quadrant Information Services. These rates were obtained publicly from insurer filings and should only be used for comparison purposes — your own quotes may differ.