How to change homeowners insurance when you have an escrow account

You may be wondering if it’s easy, or even possible, to change homeowners insurance midway through your policy term. The answer is yes, and it can be done in five simple steps.

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Pat Howard

Pat Howard

Senior Editor & Licensed Home Insurance Expert

Pat Howard is a senior editor and licensed home insurance agent at Policygenius, where he specializes in homeowners insurance. His work and expertise has been featured in MarketWatch, Real Simple, Fox Business, VentureBeat, This Old House, Investopedia, Fatherly, Lifehacker, Better Homes & Garden, Property Casualty 360, and elsewhere.

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Ian Bloom, CFP®, RLP®

Ian Bloom, CFP®, RLP®

Certified Financial Planner

Ian Bloom, CFP®, RLP®, is a certified financial planner and a member of the Financial Review Council at Policygenius. Previously, he was a financial advisor at MetLife and MassMutual.

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When your homeowners insurance and property taxes are paid through an escrow account, you have the convenience and comfort of knowing your bills are being paid on time every month. But since escrow includes these expenses in your monthly mortgage payment, it’s also easy to forget how much you’re paying for insurance and how much you could potentially save by switching companies. 

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On top of that, the thought of changing your homeowners insurance when it's paid through an escrow account may seem like a daunting process — but it’s actually no more difficult than changing companies without an escrow account. 

Find out how to change homeowners insurance in escrow in five easy steps.

How does home insurance escrow work?

An escrow account is where your lender deposits a portion of your monthly mortgage payment to pay for property taxes, private mortgage insurance, and homeowners insurance. 

Under escrow terms, you make a single monthly payment to your lender. A portion of this payment goes toward your monthly mortgage payment, and the rest is deposited into your escrow account. Your bill will clearly state how much of your payment is going toward paying off the house and how much is going into your escrow account.

Here’s an example.

Take a $2,000 mortgage bill, for instance. A portion of this bill, let’s say $1,500, goes toward paying the principal and interest on the home. The remaining $500 is your escrow payment, and that amounts to a portion of what you owe in insurance and property taxes for the year.

Your lender will conduct a yearly escrow review and adjust your escrow payment based on your insurance and property tax rate changes

That means if your property taxes and home insurance are set to increase by $800 this year, your escrow payments would increase by about $67 per month. Your lender may then send you an escrow review statement that explains how much your insurance and property taxes went up.

How do you change homeowners insurance with an escrow account?

Changing homeowners insurance providers with an escrow account isn’t any harder than if you were paying for insurance directly, but there are a few more variables to consider. 

Take the following example:

  • You change insurance companies six months into a $1,000 annual policy term and the policy you switched to is considerably cheaper

  • Premiums on your now canceled policy were paid upfront for the year — but luckily, homeowners insurance is prorated, so you’re owed a $500 refund by your old insurance company

  • Depending on the specifics of your mortgage contract, you may have the option of putting the refunded policy premiums back into your escrow account or pocketing the refund

If you’re thinking about switching to a new company, you should also have an understanding of what everyone involved — you, your insurance company, and your lender — need to do to get your new policy up and running.

1. Gather information about your home and current policy

To save yourself some time during the application process, make sure to gather information about your home, like its square footage and heating type, and grab your current policy’s declarations page so you’re able to provide coverage limits for a quote estimate. 

2. Compare quotes from several companies

Be sure to compare quotes from at least three different insurance companies. Getting quotes from multiple companies gives you the opportunity to size up each company and policy option and provide a sufficient comparison against your current home insurance. 

Our Policygenius agents can help you compare quotes with multiple top companies, cancel your old policy, and get your new policy set up with your lender and escrow account.

3. Notify your mortgage servicer of the switch

Since your insurance is being paid through an escrow account, you’ll want to notify your lender of the switch so they can direct the escrow company to stop making payments to your old insurer. It’s also possible that your new insurance company will contact your lender on your behalf.

4. Finalize your new policy and cancel your old one 

As soon as you finalize your new homeowners insurance and have an official start date, contact your current insurer so they can set a cancellation date on your current policy. To safeguard against any lapses in coverage or uninsured property damage, make sure your current policy’s cancellation date is the same day as your new policy’s effective date.

Once you cancel your old policy, the insurance company may send both you and your mortgage company a cancellation notice confirming an end date to your policy. If you paid your premiums for the year in full and you canceled it before the end of the policy term, the insurance company should issue you a refund check for any unused premiums.

5. Let your mortgage company do the rest

Once you’ve notified all interested parties of the switch, your lender will likely provide your insurance information to the escrow company so they can begin directing payments to your new insurer. 

Keep in mind that during this time, your escrow account may incur a shortage, or maybe you’ll have an overage, so your monthly mortgage payments may fluctuate based on your account standing.

Your insurer will send you proof of coverage

Once you pay your first policy premium on your new policy, your insurance company will likely send your mortgage company your policy declarations page or an insurance binder, which is a document that provides evidence of coverage.

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Does changing homeowners insurance cost any money?

No, regardless of whether you change your homeowners insurance at renewal or in the first couple months of your policy term, you shouldn’t incur any added fees. Some insurance companies may charge you a cancellation fee for a small amount, like $25, but even this is fairly rare.

One thing to keep in mind is banks often charge more than what you actually owe in insurance and taxes. They do this to prevent your account from shorting in the event of unexpected insurance and tax increases. For that reason, escrow payments are generally more expensive than paying your insurance or taxes directly.

By law, your bank can’t pad your account with more than two months of taxes and two months of insurance

If it's determined during your escrow review that your account has more than that, you’re entitled to a surplus check at the conclusion of the review period.

Do I have to pay homeowners insurance through escrow?

Lenders often require escrow accounts for insurance and property taxes if your down payment is less than 20% of the home’s sale price. If a year or two passes and your account is in good standing with no missed payments, you may be able to get rid of your escrow account via an escrow waiver or cancellation form provided by your lender.

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