Not all homeowners are required to pay their homeowners insurance premiums through a mortgage escrow. It’s possible that you could pay your insurance company directly. However, there are times when you won’t have a choice in the matter.
If you are paying homeowners insurance with escrow, it’s important to understand how it works. It’s also important to understand the steps you must take if you want to change your homeowners insurance when paying through escrow.
When You May Be Required to Pay Through Escrow
There are certain situations in which your mortgage company may require you to pay homeowners insurance through an escrow account. The most common reason for this is if you put less than a 20% down payment at closing.
Mortgage companies require escrow for insurance in these situations to protect their investment. If a catastrophe were to occur to your home or property, the lender wants to ensure you have insurance to protect you.
Even if you aren’t required to pay homeowners insurance with escrow, you could still opt to do so on your own. One reason you may choose to do so is the ease of payment. By choosing this option, you will be able to pay your mortgage, taxes, interest, and insurance all in one payment.
How Escrow Accounts Work
Your lender will set up an escrow account on your behalf. Then, every month, a portion of your total mortgage payment will go into that account. On your mortgage bill, you can view a detailed breakdown of your payment.
The largest portion of your mortgage bill goes toward the principal and interest payment. Included in escrow are items such as property taxes and homeowners insurance.
The escrow payment is calculated by taking the annual property payment and homeowners insurance premium and dividing by 12. For example, if your annual homeowners insurance premium is $1,200, then you will be required to pay $100 per month toward your escrow account.
Your mortgage company will then pay your homeowners insurance company directly out of your escrow account. This will remove the responsibility from you having to do so.
Once a year, your mortgage company will conduct an escrow analysis. They will examine your updated property tax and homeowners insurance premiums and make any necessary adjustments to your escrow payment. Your total mortgage payment could increase or decrease after this analysis.
How to Change Your Homeowners Insurance with Escrow
Just because you pay homeowners insurance with escrow doesn’t mean you’re locked into one policy or one insurance company. You can still make changes to your policy and/or insurance company.
Changing your homeowners insurance is equally as simple with escrows as it is without. There is just one additional step. You must inform your mortgage company of the change.
Step 1: Shop for a New Policy
The first step is to find a new policy. This can be either with your current insurance company or a new one.
If you’re shopping at different companies, it’s a good idea to have your current home insurance policy on hand. This way, you can compare apples to apples financially. It also helps ensure that your mortgage company will accept your new policy.
Once you’ve settled on a new policy, you’ll simply need to pay the required premium and select a start date for the new policy.
Step 2: Cancel Your Current Policy
The next step is to cancel your current homeowners policy. Contact your insurance company and notify them of the date your new policy begins. You can then settle on a date for your current policy to end.
Cancelling your current policy should be a relatively easy step. Your insurance company may require you to send proof of the new insurance policy before your current insurer can cancel your policy.
If you paid for your current policy in full for the year, you may be due a refund. For example, if you paid for 12 months of a policy but cancelled after six months, your insurer will owe you for those six months of premiums.
You’ll have two options to receive the refund. Your insurance company can issue a refund check. Or, they can issue a credit to your escrow account.
Step 3: Notify the Mortgage Company
The final step is to notify your mortgage company of the switch in homeowners insurance policy. You’ll need to let them know when your current policy ends and when the new policy starts. They’ll also likely require proof of this.
In many cases, the mortgage company will work with the new insurance company directly to get this proof. However, you could also be asked to submit a copy of the declaration page of your new policy.
Once they have proof, your mortgage company will take care of the rest. They’ll stop paying your current insurance company when that policy ends. And they’ll start paying the new policy when it begins.
You’ll see an adjustment in your escrow account once everything takes effect. You won’t need to take any additional steps to ensure this happens.
Signature Insurance Can Provide You with a Great Homeowners Plan
Many homeowners shy away from shopping around for homeowners insurance if they pay for it through escrow. But, this isn’t something that should scare homeowners away.
Making a change in your homeowners insurance policy is as simple with escrow as it is without.
At Signature Insurance, we can help you navigate this process so it’s easy and painless. We’ll work directly with your mortgage company to ensure everything is set up properly and in a timely fashion.
Most importantly, we’ll provide you with an affordable homeowners insurance policy that provides you all the coverage you need to protect you and your home. Contact us today for a free quote.
Get insurance today!
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Contact us at (586) 274-9600 and we’ll be happy to get quote for you from many of the top auto insurance companies or home insurance companies in Metro Detroit.