U.S. Households’ Homeowners Insurance and Financial Well-being

This study investigates the association between U.S. homeowners insurance decisions and financial well-being, specifically examining the moderating role of financial literacy. Utilizing weighted cross-sectional data (2019–2022) from the Understanding America Study (UAS), we employ Ordinary Least Squares (OLS) regression to analyze how voluntary insurance uptake among outright (mortgage-free) homeowners relates to subjective financial security. Our findings reveal that insured outright owners report significantly higher levels of financial well-being compared to both renters and uninsured owners. Furthermore, interaction models demonstrate that financial literacy acts as a critical cognitive moderator; the positive association between insurance and well-being is strongest for households with medium-to-high financial literacy, suggesting that literacy enables homeowners to better realize the utility of risk-transfer mechanisms. To ensure the integrity of our results, we addressed heteroskedasticity using bootstrapping and Robust Variance-Covariance Estimates and mitigated selection bias through Nearest-Neighbor Matching, which confirmed a robust Treatment Effect. These results suggest that while housing equity provides a baseline for security, formal insurance is essential to maximizing financial well-being. Implications for policymakers include the need to incentivize insurance among mortgage-free households and integrate financial literacy modules into housing programs. For financial planners, the study highlights the importance of addressing socio-economic and cognitive differences when advising clients on risk management and asset protection.