Hi all.
Please bump if you are having troubles installing Kali, but what you really want is an encrypted install on a partition alongside windows / linux.

I suspect many USB / VM installs are done because it's the simplest way to get Kali up and running without trashing your other installation, not because it's what users actually want. I could be wrong, and I thought this thread would help answer the question. If there's a lot of support, we could request the developers to add a "install in an encrypted partition" or "install in an encrypted partition in free space" option to the Guided Install options.