When loss strikes twice: severe health shocks and financial well-being

Abstract We study how fatal and nonfatal health shocks affect households’ ability to meet their financial obligations. We find that fatal shocks substantially increase the likelihood of default and that housing wealth plays a key role as a self-insurance mechanism. Surviving spouses who experience the largest income losses are more likely to sell their homes, and those without housing wealth face a sharply higher risk of debt collection. In the most financially vulnerable families, these shocks even generate intergenerational spillovers. In contrast, nonfatal health shocks lead to only modest increases in default risk. Taken together, our findings suggest that strengthening survivors’ benefits for households with limited resources could improve welfare across generations.