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When you pay home insurance out of an escrow account, it’s still possible to change insurers, but it can be a little more complicated. Here’s how.
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Homeowners must have a home insurance policy for their property. A mortgage lender will require property owners to buy a policy to protect the collateral. In many cases, homeowners are required to include their insurance costs in their monthly mortgage payments.
See, lenders want to be sure that property owners have the funds to pay their insurance bill when it comes. So mortgage lenders may divide up the annual cost of insurance, tack this onto required monthly mortgage payments, and then put the money into an escrow account. The insurance bill then goes to the lender who pays the premiums from escrowed funds.
People who escrow their homeowners insurance payments may wonder if it’s possible to change insurance companies even though the current provider is billing the mortgage lender. Here’s what property owners need to know about switching coverage when escrowing insurance costs.
How to change insurers when escrowing premiums
When escrowing insurance premiums, it is still entirely possible to change insurance companies. However, some additional steps must be taken to avoid problems:
Homeowners must find out how their mortgage lender should be listed on the insurance policy and what address should be used. Policies include a mortgagee clause and the correct lender name must be included on those policy documents. The name to list may be different from what the lender is commonly called, and the address may not be the same one mortgage payments are sent to as many lenders use a different address for insurance documents.Homeowners should notify the mortgage lender of their intent to change insurance carriers. While the lender should be notified that the old policy has been canceled and a new one has been put into effect, this may not always happen seamlessly if insurers don’t send the updated documents quickly. It’s best to let the lender know so premiums aren’t sent to the wrong place or so the lender doesn’t think there’s been a lapse in insurance coverage.Homeowners are responsible for calling their existing insurer and canceling the policy — and it’s important to avoid a lapse in coverage while doing so.Any premium refunds the insurer sends directly to the homeowner should be sent to the mortgage company to be put back into the escrow account. Otherwise, this could cause an escrow shortfall and necessitate additional payments later. It’s best to call the mortgage lender to find out exactly how to send this money.
By taking these additional steps, homeowners can make sure their switch to a new insurer goes off without a hitch.
Don’t hesitate to switch insurers when necessary
It can seem daunting to change insurers when making premium payments out of an escrow account. But if the existing policy has become too expensive and another carrier is offering a better deal, or the insurer isn’t providing good customer service and there are concerns about claims handling, it’s worth the effort. Just follow these simple steps to make the change to an insurance company that is a better fit.
Our picks for best homeowners insurance companies
There are many homeowners insurance companies to choose from. We’ve researched dozens of options and short-listed our favorites here. Looking for a green build discount or easy bundle policies? Want an easy-to-use interface? Read our free expert review and get a quote today.
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