the average monthly mortgage payment in the united states is $1,487, according to u.s. 2019 US Housing Survey from the Census Bureau. Since most mortgages have an escrow account, that monthly mortgage payment will likely include a portion that is set aside for property taxes or property insurance (and, in many cases, for both of them). This means that finding cheaper home insurance coverage could lower your monthly mortgage payment.
However, if you’re planning to switch homeowners insurance companies and your mortgage includes an escrow account, you may want to take a few extra steps when purchasing a new policy. bankrate can help you understand how escrow accounts affect homeowners insurance policies and what you need to know when changing insurance providers.
how escrow homeowners insurance works
When you have a home equity account, a portion of your monthly mortgage payment goes toward your homeowners insurance premium. Essentially, you pay a month’s worth of your annual homeowners insurance premium to your mortgage company each month. the amount is then held in your escrow account. the money accumulates until your insurance policy is renewed, and then your mortgage lender makes a payment in full to your home insurance company.
how to switch homeowners insurance with an escrow account
Paying for your home insurance through escrow can be convenient, but if you want to switch insurance providers, things can get a bit complicated. You should make sure your mortgage lender knows which insurance company to send your payment to. Otherwise, your premium could go to the wrong company, your homeowners insurance could lapse, and your mortgage company could put forced insurance on your account. however, don’t let this stop you from buying; you can still change your operator, you just have to be aware of the steps to follow.
step 1: find and choose a new carrier
If you want to switch homeowners insurance companies, the first step is to shop around. Understand your coverage needs, budget, and the features you’re looking for (like a certain discount or a mobile app), and research companies that might fit your situation. Once you get quotes and choose a company, you can proceed to the next step.
Step 2: Confirm the mortgagee clause for your lender
Before you buy your new policy, you’ll need to know exactly how your mortgage lender should be listed. this is called a mortgagor’s clause and includes the official name of your lender and the address where all policy documents, including renewal bills, will be sent.
The mortgagor clause is not just the name of your lender and the address to which you send your monthly payments; most companies also have unique addresses for insurance documents.
To make sure you include the correct information on your new insurance policy, call your mortgage company to confirm. then pass on the information to your new insurance company before you buy your new policy. Often, the purchase of the policy automatically generates documents to send to the mortgage of record, so the mortgagee clause must be correct from the beginning to avoid confusion.
step 3: buy your new policy
Once you know the mortgagor clause of your new policy is correct, you can go ahead and complete the purchase of your new policy. An agent or company representative will walk you through the steps, but you’ll likely need to sign an application and any other required forms related to your coverage. Since you’ll be paying for your insurance with an escrow, you won’t need to make an out-of-pocket payment. your new insurance company will send a bill to your mortgage institution.
step 4: cancel your old policy
Now that you’ve purchased your new policy, contact your current home insurance company to cancel your old policy effective the same date your new policy becomes effective. making sure the dates are the same will prevent any overlap or gap in coverage. even if your new policy goes into effect in the future, it’s still a safer process to start the new policy before canceling the old one. that way, if there’s a problem starting your new policy, you still have coverage through your old policy.
Step 5: Notify your mortgage company
Your mortgage company should receive a cancellation notice from the old insurer and a declaration page from the new insurer, but you can help avoid confusion by letting your mortgage company know you’ve changed insurance providers. you will likely need to provide the cancellation date of the old policy and the effective date of the new policy (which must be the same date to avoid an expiration), as well as the name of the new company and the policy number .
Step 6 – Send premium refunds to your new escrow account
You may receive a premium refund, depending on when in the policy cycle you cancel. If you switch companies during your renewal period, you will not get a refund as your entire annual premium has been used. however, if you switch companies mid-term, you’ll likely get a prorated premium refund from your old policy.
Usually, you should contact your mortgage company to find out how to return this money to your escrow account. while you could keep it, doing so could mean your escrow will be tight and you’ll have to pay higher monthly mortgage payments to rebuild your escrow amount.
frequently asked questions
do I have to pay my home insurance with escrow?
Can I change my home insurance at any time if I have an escrow account?
what if my mortgage company doesn’t pay my home insurance?