How Income Inequality Shaped Homeowners’ Insurance Decisions Before Hurricane Maria

What is it about?

Hurricane Maria caused massive destruction in Puerto Rico, damaging hundreds of thousands of homes. Many homeowners did not have insurance to help them rebuild, but why? This study examines how both household income and income inequality in different communities influenced homeowners’ decisions to have insurance before the disaster. We found that people with higher incomes were more likely to have insurance, but the effect of income inequality depended on a household’s income level. In communities with greater income gaps, low-income homeowners were even less likely to have insurance, possibly because higher housing costs made insurance even less affordable. However, in the same communities, high-income homeowners were actually more likely to have insurance—suggesting that income inequality may reinforce economic divides in disaster preparedness. These findings highlight the need for policies that make insurance more accessible, particularly for low-income households in communities with high inequality, to ensure a more equitable recovery from future disasters.

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Photo by Zoltan Tasi on Unsplash

Photo by Zoltan Tasi on Unsplash

Why is it important?

Our study is among the first to examine how income inequality interacts with household income to shape disaster preparedness decisions, specifically in the context of homeowners’ insurance. While previous research has shown that lower-income households are less likely to have insurance, our work goes further by demonstrating that income inequality amplifies this divide—discouraging low-income homeowners from obtaining insurance while encouraging high-income homeowners to do so. This reveals a critical and often-overlooked structural barrier to disaster resilience: economic inequality doesn’t just reflect existing disparities; it actively shapes financial protection choices before a disaster strikes. This research is especially timely as extreme weather events become more frequent due to climate change. With growing economic disparities in many parts of the world, our findings highlight the urgent need for policies that ensure financial protection is accessible to all homeowners—particularly in high-inequality areas where vulnerable populations face compounding risks. By addressing these disparities, policymakers and insurers can help create more equitable disaster recovery systems and prevent widening inequality in the wake of future climate disasters.

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