June 23, 2024
How to switch homeowners insurance when your escrow pays your premium


Homeowners may consider switching insurance providers for a variety of reasons. Some are on the hunt for a less expensive premium, while some want enhanced benefits or superior customer service. If your home insurance premium is funded through an escrow account, don’t be deterred by the prospect of a bit more paperwork. It’s crucial to secure a home insurance policy that suits your needs best. To facilitate this process, Bankrate’s insurance editorial team has compiled a six-step guide to changing your home insurance when it’s tied to an escrow account.


How homeowners insurance works with escrow

When you have a mortgage escrow account, a portion of your monthly mortgage payment is earmarked for your home 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 renewal, when your mortgage lender makes a payment for the full amount to your home insurance company.

READ THIS: Does homeowners insurance cover your swimming pool?

As of March 2024, the median monthly mortgage payment is $2,049. The average cost of home insurance is $1,687 per year, according to January 2024 data from Quadrant Information Services. However, premiums appear to be on the rise. If you pay for insurance through an escrow account, you’ll want to take that into consideration when budgeting.

When you might want to change home insurance with an escrow account

If you have a mortgage and pay your home insurance with an escrow account, switching companies can be a bit more complex than it would be if you owned your home outright. But you have the right to choose your insurer, regardless; a mortgage lender can’t require you to use any specific insurance company. Here are some scenarios when you might want to consider moving your home policy to a new insurance company, even if you have an escrow account:


You want to find a cheaper policy: If you’re looking for cheap home insurance, shopping around is a good strategy that allows you to compare rates. Because your insurance premium affects how much you pay into your escrow account each month, a cheaper policy could result in a lower mortgage payment when your company does its escrow analysis.

You’re refinancing: Refinancing could provide a good opportunity to see if you can find a cheaper home insurer to help reduce your monthly costs even further. You don’t have to change insurance companies if you’re refinancing, but it could provide a good opportunity to see what else is out there.

Your needs have changed: If you’ve started a home business, purchased a certain breed of dog, made specific changes to your home, or experienced a life event like getting married or having a baby, you may find yourself in need of a specialized coverage type that your current insurer doesn’t offer. Looking for a new home insurance company may help you get a policy that fits your new needs.

You had a poor service experience: If you’re not happy with the service you’re receiving with your current insurer, you may want to shop around. Service is an important part of the insurance experience, and you want to make sure you find a carrier that you trust.

Read more: Best homeowners insurance companies


How to change homeowners insurance with an escrow account

Paying your home insurance through escrow can be convenient, but if you want to change insurance providers, things can get a little tricky. You need to make sure your mortgage lender knows which insurance company to send your payment to. Otherwise, your premium could go to the wrong carrier causing a lapse in your home insurance coverage. While you and your insurance agent can rectify the situation, it can cause your mortgage payments to drastically increase over the next 12 months if an escrow shortage occurs. Don’t let this stop you from shopping around, though; you can still change carriers, you just need to be aware of the steps to take.


Shop for and choose a new carrier

If you’re wanting to change homeowners insurance companies, your first step is to shop around. Understand your coverage needs, budget and the features you’re looking for (like a certain discount or mobile app) and research companies that could fit your situation. Once you get quotes and choose a company, you can proceed to the next step.


Read more: How to choose the best home insurance company


Confirm the mortgagee clause for your lender

Before you purchase your new policy, you’ll need to know exactly how your mortgage lender should be listed. This is called the mortgagee clause and includes your lender’s official name and the address where all policy documents — including your renewal bills — will be sent.


The mortgagee clause is not just your lender’s name and the address to which you send your monthly payments; most companies also have unique addresses for insurance documents. To ensure you include the correct information on your new insurance policy, call your mortgage company to confirm. Then, relay the information to your new insurance carrier before you purchase your new policy.


Often, the purchase of the policy automatically generates documents to be sent to the mortgage on file, so the mortgagee clause needs to be correct from the start to avoid confusion.


Purchase your new policy

Once you know the mortgagee clause on your new policy is correct, you can go ahead and finalize the purchase of your new policy. An agent or company representative will walk you through the steps, but you’ll likely have to sign an application and any other required forms related to your coverage. Because you’ll pay your insurance with escrow, you will not need to make a payment out of pocket. Your new insurance company will send a bill to your mortgage institution.


Cancel your prior policy

Now that you’ve purchased your new policy, contact your current home insurance carrier to cancel your prior policy as of the same date your new policy is effective. Ensuring the dates are the same will prevent any overlap or gap in coverage. Even if your new policy is effective in the future, it’s still a safer process to start the new policy before canceling your old one. That way, if there are any issues getting your new policy started, you still have coverage through your old policy.


Notify your mortgage company

Your mortgage company should receive a cancellation notice from the prior insurer and a declarations page from the new insurer, but it can help avoid confusion to let your mortgage company know that you’ve switched insurance providers. You’ll likely need to provide the cancellation date of the prior policy and the effective date of the new policy (which should be the same date to avoid a lapse), as well as the name of the new company and the policy number.


Send any premium refunds to your new escrow account

You may receive a prorated premium refund from your prior insurer if you switched companies midterm. If you switch companies at your renewal period, you won’t get a refund, as all of your annual premium has been used.


Generally, you should contact your mortgage company to find out how to send this money back to your escrow account. While you could keep it, doing so could mean that your escrow will have a shortage and you’ll have to pay higher monthly mortgage payments to rebuild your escrow amount.

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