A homeowners insurance refund check is a reimbursement from your insurance company when you’ve paid more than you owe for coverage. These checks are generally legitimate and fairly common, but it’s a good idea to confirm why you got one before you deposit it. You might receive one if your policy is cancelled early, you sell your home, or switch insurers during the policy term.
If you pay your insurance premiums — the regular payments that keep your coverage active — through a mortgage escrow account (a separate account your mortgage servicer uses to pay your insurance and property taxes), the refund may need to go back to that account. If you pay your insurer directly, the refund generally goes to you.
Why do home insurance refund checks happen?
Home insurance refund checks are issued when the insurance company owes you money. Common reasons include:
- Overpayment: If you pay more than you owe because of a duplicate or incorrect payment, your insurer may send you a refund.
- Premium reduction: If you qualify for a new discount or make changes that lower your home insurance premium, you might receive a refund for the difference.
- Policy cancellation: If your policy ends before its expiration date, you may receive a refund of the unused premium. The amount depends on your policy terms and who initiated the cancellation.
- Switching insurers: If you change insurance companies before your existing policy expires, you may receive a refund for unused coverage. For example, you might pay for your new policy while your lender still pays your old insurer. That can leave you with two payments for the same period.
Refunds are often prorated, meaning that they’re based on the amount of time left on your policy term. However, cancellation fees or other policy provisions may affect the amount you receive.
How are refund checks calculated and issued?
How homeowners insurance companies calculate and issue checks depends on the situation. Here are some of the most common scenarios.
If you cancel your policy early
If you cancel your policy before it ends, you’re typically entitled to a refund for the remaining period you already paid for. Some insurers may subtract a cancellation fee from the total you’re owed.
If you pay your premiums through an escrow account, your refund will likely need to go back into that account. Your insurer may send the check to your lender or directly to you. If you receive it, contact your mortgage servicer before spending the money.
If there’s a billing adjustment
If your home insurance refund check is due to a billing adjustment, such as an overpayment or a rate change, the amount owed is based on the difference between what you paid and what you should have paid.
Your insurer may issue the refund by check or direct deposit. If you pay through escrow, check with your mortgage servicer about how the refund will be handled.
If you paid off your mortgage
If you pay your homeowners insurance through escrow and recently paid off your mortgage, your servicer generally must return any remaining escrow funds within 20 business days under federal Regulation X.
Pro tip: Your insurer won’t automatically know your loan has been paid off. Contact your insurance company so future premium bills go directly to you instead of your former escrow account.
How do you estimate your refund amount?
You can get a rough estimate of your refund amount with some simple calculations. This works best when your refund is prorated, meaning it’s based on the unused time left in your policy term.
Prorated (per-diem) method
Many insurers calculate refunds based on the unused days left on your policy, as follows:
- Annual Premium ÷ 365 = Daily Rate
- Daily Rate × Remaining Days on Your Policy = Estimated Refund
For example, if your annual premium is $1,200, your daily rate is $1,200 ÷ 365 or about $3.29. If you cancel with 90 days left on your policy, your estimated refund is your daily rate ($3.29) × 90 days, or approximately $296.
Short-rate cancellations
Some insurers use a short-rate calculation when you cancel your policy early. With this approach, the insurer keeps part of the unused premium as a cancellation penalty. You’ll receive a smaller refund than you would with a prorated calculation.
Short-rate penalties generally only apply when you initiate cancellation. The rules vary by state and policy, so it’s worth checking your policy terms before you cancel to understand how it may affect your refund.
What should you do when you receive a home insurance refund check?
Knowing what to do with a homeowners insurance refund check depends on why it was issued and how your policy is paid. Here are four steps to take before cashing it:
- Find out why you received the check. If you weren’t expecting a refund, contact your insurance company to ask why it was issued. To avoid scams, call the number on your insurer’s official website rather than one printed on the check.
- Make sure your home insurance is still active. A refund may mean your policy was canceled or your coverage changed. Check that your policy is still active and that no changes were made without your request.
- Note who the check is made out to. If your name and your lender’s name both appear, contact your mortgage company to ask how to sign over the check. Even if the check is made out only to you, don’t assume the money is yours to keep. If your premiums are paid through escrow, ask your servicer if you need to return the refund to that account.
- Deposit or forward the check as instructed. Once you’ve confirmed where the money belongs, deposit it or send it to your mortgage servicer. Keep a copy of the check and any correspondence about the refund in case questions come up later.
What should you do with a refund check after switching insurers?
If you switch home insurance companies before your old policy expires, you may receive a refund for unused coverage. Follow these steps to avoid problems with your escrow account:
- Confirm your new coverage is active. Your mortgage servicer generally requires you to maintain your homeowners insurance coverage, so make sure your new policy starts on or before the day your old one ends.
- Send your new declarations page to your mortgage servicer. This document summarizes your coverage, premium, and policy dates.
- Return the refund to escrow if your lender paid the old premium. Ask your servicer how to deposit the check, even if it’s payable only to you.
- Confirm your mortgage company has updated its records. Make sure it’s paying the new insurer and won’t continue to pay the old one.
Is this check yours? A quick reference guide
|
Who’s on the check? |
What to do |
What to know |
|
Your name only |
Verify before depositing |
If you pay the premium directly, the refund is generally yours. If your lender pays through escrow, contact your mortgage servicer first. |
|
Your name and the lender’s name |
Contact your mortgage servicer |
Both parties may need to sign the back of the check. Your servicer can explain how to handle it and where the refund belongs. |
|
Lender’s name only |
Contact your mortgage servicer |
The refund may need to be credited to your escrow account. Follow your servicer’s instructions for forwarding the check. |
Mistakes to avoid if you receive a home insurance refund check
If you receive a home insurance refund check, avoid these common mistakes:
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Depositing the check right away: Don’t assume the money is yours to spend, even if your name is on the check. A homeowners insurance refund check involving escrow may need to be returned to that account. Check with your mortgage servicer before depositing or spending the money.
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Waiting too long to deposit the money: Home insurance refund checks typically expire within a certain amount of time, often between 90 and 180 days. If your check is no longer valid, contact your insurer to request a replacement.
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Assuming your coverage is unchanged: A refund may mean your policy was canceled or adjusted. Contact your insurer to confirm your coverage is still active and meets your needs.
How do refund checks affect your escrow account and mortgage payment?
A homeowners insurance refund check isn’t necessarily extra money you can spend. If you’re paying your home insurance premium from an escrow account, the insurance refund check should be deposited into that account, not your personal account.
Your servicer reviews your escrow account annually to compare what you’ve paid with the amount needed for insurance and property taxes. The calculation also includes a cushion, or reserve for unexpected expenses, generally limited to two months of estimated escrow expenses.
If your escrow account has a surplus of $50 or more, your servicer generally must return it to you within 30 days, provided your mortgage payments are current. Unlike an insurance premium refund, this money is returned from your mortgage servicer.
A refund may also affect your monthly mortgage payment. If the cost of your home insurance decreases, your servicer may reduce the amount collected for escrow, lowering your total monthly payment.
What should you do if your refund check never arrives?
If you’re expecting a refund check and it never arrives, you can take the following steps:
- Contact your insurance company. Confirm that the refund was issued and ask how it was sent. If the check was mailed, ask whether it has been cashed.
- Check with your mortgage company: If you pay through escrow, the refund may have been sent directly to your servicer instead of you.
- Request a replacement check. If the original check is lost, ask your insurer to stop payment and issue a new one. If you can’t resolve the problem, contact your state insurance department for assistance.
Frequently asked questions
Why would you get a check from your home insurance company?
If you received a check from your home insurance company unrelated to an insurance claim, it could be a premium refund. A refund returns money you overpaid or paid for coverage you no longer need. It could also be a dividend, which some insurers pay to policyholders, or a payment tied to a past claim. Check the accompanying letter or payment statement to identify the reason for the check. If it’s unclear, contact your insurer before depositing or spending the money.
What should you do with an escrow refund check?
An escrow refund check comes from your mortgage company when your escrow account has more money than needed for insurance, property taxes, and any required reserve. Unlike an insurance premium refund, an escrow surplus refund is generally yours to keep. You can deposit or spend it, but check with your servicer if you’re unsure why it was issued.
How long does it take to get a refund after you cancel?
Refund times vary by insurer and state. Some states require insurers to return unused premiums within a specific period after cancellation. Contact your insurer if your refund hasn’t arrived within the required timeframe. If you pay through escrow, check with your mortgage servicer, too.
Do you have to pay taxes on a home insurance refund?
A refund of homeowners insurance premiums generally isn’t taxable because it’s a return of money you already paid. However, if you previously deducted those premiums on your taxes, such as for a rental property or qualifying home office, some or all of the refund may be taxable. Consult a tax professional if you’re unsure whether your refund needs to be reported.
What happens if you deposit a refund check meant for your lender?
If you deposit a home insurance refund check that was meant for your lender, it may create an escrow shortage. When your lender pays your insurance through escrow, any refund should go back to that account. If not, the escrow balance may fall short. If this happens, contact your lender right away. They can explain how to repay the amount to avoid further issues.
