Most lenders require homeowners to pay their home insurance premiums through their escrow accounts. However, they are not permitted to tell you which insurance company you are using. As a homeowner, you can decide whether to choose a home insurance provider or when to switch careers. Changing a provider is easy. Simply notify your insurance provider and mortgage lender to your Switch lender.
How homeowner insurance works in escrow
If you have a mortgage escrow account, some of your monthly mortgage payments are allocated to other expenses such as home insurance premiums and property taxes. Basically, you pay a month’s monthly annual homeowner insurance premium to the mortgage company. The amount will then be retained in your escrow account. Money accumulates until your insurance policy renewal when your mortgage lender pays your home insurance company in full.
When to change your home insurance with an escrow account
If you have a mortgage and pay your home insurance with an escrow account, the switching company can be a little more complicated than if you own the home entirely. However, you have the right to choose an insurance company. Mortgage lenders cannot request the use of any particular insurance company. If you have an escrow account and still want to consider moving your home insurance to a new insurance company, here are a few scenarios:
- You want to find a cheaper policy: If you’re looking for cheap home insurance, shopping is a good strategy to compare prices. Insurance premiums affect how much you pay to your escrow account each month, so if your company does an escrow analysis, a cheaper policy could be your mortgage payment.
- You are refinanced: Refinancing may provide a good opportunity to see if you can find a cheaper home insurance company to further reduce monthly costs. If you have a refinance, you don’t need to change your insurance company, but it can provide you with a good opportunity to see what else you have.
- Your needs have changed: If you have started a home business, bought a certain type of dog, made specific changes to your home, or experienced a life event, such as getting married or having a baby, you may need a specialized coverage type that your current insurance company does not offer. Looking for a new home insurance company may help you get insurance that suits your new needs.
- You had poor service experience: If you are not satisfied with the services you receive from your current insurance company, you may want to shop. Services are an important part of your insurance experience and you want to find a reliable career.
read more: Best Homeowner Insurance Company
How to change your homeowner’s insurance with an escrow account
Paying home insurance via escrow is convenient, but it can be a little difficult if you want to change your insurance provider. Mortgage lenders use funds from their escrow accounts to pay premiums. If you provide the latest documentation to the new insurer and do not provide payment information to the lender, your next premium payment could fall into the hands of the wrong insurer. This could result in your home insurance coverage expired. You and your insurance agent can correct the situation, but if there is a shortage of escrow, mortgage payments could increase significantly over the next 12 months.
However, a virtual accident should not stop you from shopping. The following steps categorize how to change your homeowner’s insurance company to avoid potential progression of escrow account coverage or shortages.
1. Buy and choose a new carrier
If you want to change your homeowner’s insurance company, the first step is to shop. Understand the coverage needs, budget, features you are looking for (such as a specific discount or a mobile app), and the research company that suits your situation. Once you have obtained the quotes and selected your company, you can proceed to the next step.
read more: How to Choose the Best Home Insurance Company
2. Check your lender’s mortgage clause
Before purchasing a new policy, you need to know exactly how mortgage lenders should be listed. This is called a mortgage clause and includes the official name of the lender and the address where all policy documents, including the renewal invoice, will be sent.
Mortgage terms are not just about the lender’s name and the address where you send monthly payments. Most businesses also have unique addresses for insurance documents. To ensure that you have the correct information about your new insurance policy, call your mortgage company to check it out. Next, relay your information and mortgage loan number to your new insurance company before purchasing a new policy.
In many cases, insurance contract purchases are sent to the mortgage company to automatically generate documentation, so mortgage terms must be accurate from the start to avoid confusion and potential insurance lapses.
3. Buy a new policy
Once you know that the mortgage clauses for your new policy are correct, you can go ahead and confirm your purchase of the new policy. Your insurance agent or company representative will walk you through the steps, but you will need to sign the applications and other necessary forms related to your coverage. You will pay your insurance with escrow so you don’t have to pay from your pocket. Your new insurance company will send invoices to your mortgage institution.
4. Cancel your previous policy
Now that you have purchased a new policy, please contact your current home insurance company and cancel your advance policy as of the same date that the new policy is effective. Ensuring that the dates are the same prevents overlapping coverage and gaps.
It is also recommended that you wait for the new policy to be issued before canceling the old policy. Previous insurers can carry a cancellation if the new policy comes into effect before cancelling the old policy. If you do that, if there are issues starting a new policy or fixes that need to be fixed, you will have coverage through the old policy.
5. Notify the mortgage company
Mortgage companies should receive cancellation notices from previous insurers and declaration pages from new insurers, but to avoid confusion, they will help inform mortgage companies that they have switched insurance companies. You may need to provide the cancellation date for the previous policy, the effective date for the new policy, and the name and policy number of the new company.
6. Send a Premium Refund to your new Escrow Account
If you switch between medium-term companies, you will receive a prorated premium refund from your previous insurance company. If you switch companies during the renewal period, there will be no refunds as all of the annual premiums are in use.
Generally, contact your mortgage company to find a way to send this money back to your escrow account. You can maintain it, but doing so may mean that your escrow is short on, and you will need to pay a monthly mortgage payment for the new policy year to rebuild your escrow amount.
