Personal Lines Insurance: Definition, How It Works, and Coverage

What Is Personal Lines Insurance?

Personal lines insurance refers to any kind of insurance that covers individuals against loss that results from death, injury, or loss of property. These insurance lines generally protect people and their families from losses they couldn’t afford to cover on their own. Personal lines insurance makes it possible to do things such as driving a car and owning a home without risking financial ruin. This is not the same as commercial lines insurance, which provides property and casualty coverage for businesses.

How Personal Lines Insurance Works

Personal lines insurance is any type of insurance coverage purchased by an individual to cover themselves and/or their families. These policies protect against different kinds of personal risks that would lead to potentially crushing financial losses caused by fire, theft, natural disasters, death, accidents, lawsuits, and illness.

The amount of insurance coverage you can get generally depends on how much you are willing to pay in premiums. The more you are willing to pay, the more insurance you can obtain. Individuals can usually tailor each policy’s coverage and deductibles to strike the right balance between the amount of coverage and the cost of premiums. Premiums can also vary according to where you live. 

Personal lines insurance won’t cover every risk an individual might face. However, it can dramatically reduce the policyholder's liability for damages and the dollar amount they might have to pay out of pocket to remedy an unfortunate situation.

Types of Personal Lines Insurance

Personal lines insurance includes products such as homeowners insurance, flood insurance, earthquake insurance, renters insurance, automobile insurance, life insurance, disability insurance, umbrella insurance, and health insurance. Some types of personal insurance, such as automobile liability insurance, are often required by law. 

For instance, required minimum levels of automobile liability insurance are common and can vary by jurisdiction or state. Other types of personal lines insurance, such as comprehensive and collision automobile insurance and homeowners insurance, may be required by lenders when a property is used as collateral for a loan.

Special Considerations

Individuals may be unable to purchase a policy for a particular situation because they pose too great a risk to the insurance company. For example, someone with a history of cancer may not be able to purchase life insurance. Another example would be a homeowner who wants to buy flood insurance, but whose house is below the flood plain. 

In some cases, high-risk individuals can still purchase insurance, but they will have to pay above-average premiums to compensate the insurer for the extra risk. One common example of this is high-risk auto insurance for drivers who've received multiple moving traffic violations over a short time or who've been at fault in multiple accidents over a short period of time.

Personal Lines Insurance vs. Commercial Lines Insurance

Personal lines insurance accounts for about 53% of net premiums written in the property and casualty insurance market, while commercial lines insurance accounts for about 47%. While personal lines insurance covers individuals, commercial lines insurance provides coverage to businesses and other enterprises.

Commercial lines insurance helps protect businesses from any losses they may not be able to cover on their own. This kind of insurance not only covers large commercial enterprises but also protects small businesses against risk. Commercial property insurance, commercial auto insurance, casualty insurance, and medical malpractice insurance are all kinds of commercial lines insurance.

It isn't always easy to determine how much coverage a business may require under a commercial policy. That's because the needs of corporations—even small businesses—are much more complicated and complex than individuals who seek coverage.

For instance, businesses are dependent on their employees, whose actions may put the business at risk for lawsuits or damages should an accident occur. Consider drivers who use company vehicles. The liability for a company may increase because of an employee's driving habits and behaviors while on the road.