Switching Homeowners Insurance with an Escrow Account

If you’re a homeowner, chances are you have homeowners insurance. While it might not be a government requirement, having a mortgage often means your lender mandates it.1 Naturally, your goal is to have the best possible homeowners insurance for your living situation. However, life changes, and so might your insurance needs. This could lead to the decision to switch your homeowners insurance company.

There could be various reasons for this change, ranging from inadequate coverage and rising premiums to a lack of discounts or unsatisfactory customer service. Other factors might include moving to a new residence or seeking to bundle policies—such as home and auto insurance—to save more.2

The notion of changing insurance providers might seem complicated, especially when payments come directly from escrow. However, understanding the process is simpler than you think. By following a few essential steps, switching to a different insurance provider can be a seamless move towards better coverage.

Understanding Escrow Accounts

Escrow involves a legal arrangement in which a third party temporarily holds money or property until specific conditions are met, such as the fulfillment of a purchase agreement. In real estate, escrow serves two purposes. One type is used as a good faith deposit during the home-buying process, safeguarding both buyer and seller and ensuring that funds reach the correct party based on the sale conditions. The other type of escrow account pertains to your mortgage.

In the latter account, a single monthly payment covers your mortgage, homeowners insurance premium, property tax, and administrative fees. If your home’s down payment was below 20%, an escrow account is typically established. Moreover, an active homeowners insurance policy is usually necessary for an escrow account.3

Your lender creates the escrow account, utilizing your payments to cover the mortgage, homeowners insurance, property tax, etc., simplifying multiple payments into a single monthly bill.2

Switching Insurance Providers with an Escrow Account

In a mortgage escrow account, a portion of your monthly mortgage payment is set aside by your lender to cover expenses like homeowners insurance premiums and property taxes. This money accumulates monthly until your annual homeowners insurance premium comes due. At this point, a payment is made from your escrow account to your insurance provider for the upcoming year’s coverage.

While paying homeowners insurance via escrow offers convenience, changing providers can seem complex. However, you’re not trapped; you can—and should—switch if it’s beneficial. Knowing the steps to change homeowners insurance makes the process manageable.4

Steps to Switch Homeowners Insurance Providers

Let’s delve into the necessary steps to transition your homeowners insurance coverage while making sure you secure the best deal for your needs.

1. Evaluate Your Current Policy: Before switching, thoroughly assess your existing policy for proper comparison. Pay attention to essential details like annual premium, coverage, limits, and deductibles. These elements enable accurate comparisons and help ensure consistent protection. Also, check if your current policy involves any early cancellation fees. Even if they exist, you can still explore other options and make the switch upon renewal.5, 6
2. Identify Your Policy Needs: Reviewing your policy offers an opportunity to identify coverage gaps, potentially leading you to opt for additional coverage despite seeking cost savings.2
3. Research Different Providers and Obtain Quotes: Armed with your current policy details, you’re ready to request quotes from at least three insurance providers. An independent insurance agent can be beneficial in this process, offering insights into perks, extra coverage, and available discounts. If your home has undergone significant improvements since the start of your current policy, you might be eligible for additional discounts.5, 6
4. Confirm Mortgage Clause with Your Lender: Ensure you have the accurate mortgage clause for your lender, specifying how they should be listed. This information should be conveyed to your new insurance provider before purchasing the policy. Having the correct mortgage clause from the outset prevents complications and confusion.4
5. Purchase Your New Policy: After selecting a new policy, you might be able to buy it immediately post obtaining a quote. However, remember not to cancel your existing policy before acquiring the new one to prevent coverage lapses. Ensure the new policy’s start date aligns with or precedes the cancellation of the current policy. If you’ve paid your current policy in full before its term, you’ll receive a refund for the unused portion. This refund could potentially be allocated to your new escrow account to cover your new policy.5, 6
6. Cancel Your Current Policy: Once your new policy is confirmed and your mortgage lender is informed, you can proceed to cancel the old policy. This ensures a seamless transition without coverage gaps.
7. Notify Your Lender: Inform your lender about the change, either before or after the switch. Their advice can be valuable in ensuring adequate coverage from your new provider. Also, provide them with the start date of your new policy, allowing them to adjust payments accordingly. Your new insurer will handle sending declarations to your lender, and your previous insurer will officially cancel the old policy.5
8. Redirect Premium Refunds to the New Escrow Account: If you’ve switched insurance companies before the renewal period, you’ll likely receive a prorated refund for the unused portion of your annual premium. Contact your mortgage company to learn how to transfer this money to your escrow account. Keep in mind that while you could use the refund, your new escrow account might need replenishing, requiring higher monthly mortgage payments.4

By adhering to these steps, changing insurance companies, even with an escrow account, is a straightforward process. Ensuring that you’re receiving the coverage you desire at a reasonable cost is essential for your home’s security and your peace of mind.

When exploring insurance providers, consider all options, which offer various discounts, especially when you bundle home insurance with other policies such as auto insurance. You can get a free combined quote or work with an independent agent to get a complete view of available coverages and discounts. Ultimately, starting the process can reveal if there are more cost-effective homeowners insurance options available.