If you pay for your home insurance through an escrow account, you’re not alone.
Many homeowners set up an escrow account through their mortgage company so they can use part of their monthly payment to cover insurance premiums and property taxes. While those with less than 20 percent down on a house are usually required to have an escrow account, any homeowner can request one through their mortgage company.
Unfortunately, many folks think switching home insurance is a hassle if the policy is paid for via escrow. That misconception may keep them from saving hundreds or thousands of dollars a year.
Switching your coverage when you have an escrow account is actually easy to do, and it can reduce your monthly expenses. It’s also worth noting that you have the right to change insurance companies at any time for any reason.
In this article, we take a look at how to change your homeowners insurance with an escrow account so you can see how simple it is – even when you’re in the middle of your policy term.
1. Get your current declarations page
When you’re shopping for new home insurance, don’t make the switch on price alone (although that’s a high priority!). Request a copy of your declarations page from your current company, or if you don’t know who your insurer is, you can find out through your mortgage company.
Your declarations page lists your coverages and limits so you can directly compare your new quote to what you currently have. Pay close attention to your Coverage A (dwelling insurance) and your Coverage C (personal property insurance) – you don’t want to shortchange these. Though you may decide some coverage options aren’t as important as they seemed when you first bought insurance, match each coverage to ensure you’re accurately comparing prices.
If you just go on price, you may get less coverage, and that can leave you vulnerable when a storm hits.
Get more tips in our guide for finding the best home insurance.
2. Check the mortgagee clause
Your new policy will have a mortgagee clause that states the insurance company will pay the mortgagee (i.e., you lender) if you experience a loss involving your home. The mortgagee clause includes your lender’s official name and address, and if it isn’t properly filled out, your lender may not get the information it needs.
Your lender may think that you’re no longer insured, which may cause it to buy force-placed insurance. This is usually much more expensive than the coverage you buy for yourself.
3. Buy the new policy
Buy your new policy before you cancel the old policy – you don’t want a lapse in coverage that could leave you uninsured for damages that happen in that window. You’ll have the option to pay for your new policy (usually in full) with your escrow account. For Kin, you just need to submit the name of your mortgage company so we can bill them for the new policy.
4. Cancel your old policy
Give your old insurance company a call and let them know you have changed insurance and want to cancel your policy. Tell them the date you got new coverage, even if it was a couple days earlier. If you have any unused premium, you’ll receive a prorated refund based on your new policy’s start date.
5. Send refunds to your escrow account
Mortgage companies usually pay premiums annually. So if you switch in the middle of your policy term, your old insurance company may owe you a refund for the unused premium. This is typically sent to you directly, not your mortgage company.
Lenders may cover any shortage if you don’t have enough funds in your escrow account to pay for the new premium. When that happens, you can usually repay them in a lump sum or over a stretch of months.
Another option, however, is to send the refund to your mortgage company. That way, your lender can use the refund to cover the shortage, and you may avoid higher monthly mortgage payments as you rebuild your escrow account.
Your mortgage company may send you a notice to ask for approval to pay the new insurance company. Once you approve, they will send the payment, and your new policy will be squared away.
That’s all there is to it!
Does changing home insurance in escrow cost money?
Changing home insurance in escrow doesn’t necessarily cost any money. However, your new insurance company may require a down payment to start the new policy. In that case, you may need to make a payment if there isn’t enough in the escrow account to cover the cost.
Will my mortgage payment change when I switch insurers?
If you have an escrow account, your mortgage monthly payment may go up or down. Your mortgage portion hasn’t changed – that stays the same unless you refinance the mortgage. Your total monthly mortgage payment typically only changes if your property taxes or your homeowners insurance costs have increased or decreased.
If you see a change and aren’t sure what caused it, you can request an audit of your escrow account. Your mortgage company will review the account and let you know the results.
Can I change homeowners policies mid-term?
If you want to change your insurance company for any reason, you can. Think you’re paying too much for insurance and want to cut costs? No problem. Had a claim that wasn’t handled well? You can change insurance companies. Just because the insurance is handled through escrow doesn’t mean you’re stuck with that insurance company.
No matter where you are in your policy term when you switch – near the renewal date, mid-term, or just a couple months in – the same steps outlined above apply if you pay through escrow. You can switch policies at any time.
So what are you waiting for? Get a quote to see if you can get better coverage at a better price.
Editor’s note: This post was originally published in July 2020. It has been updated for accuracy and comprehensiveness.