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How To Change Homeowners Insurance With Escrow: A Guide

December 21, 2023 5-minute read

Author: Sarah Sharkey


Every homeowner wants to lock in the right homeowners insurance for their situation, which can change over time. If you need to switch up your homeowners insurance and you have a mortgage, you’ll need to let your lender know. Here’s how to change homeowners insurance with an escrow account.

How Does Homeowners Insurance Work With An Escrow Account?

As a homeowner with a mortgage, your lender will likely require you to carry homeowners insurance. In many cases, you’ll pay for your homeowners insurance premium through an escrow account.

If you have an escrow account, the lender will set aside a portion of your monthly payment each month into this account. When an annual bill, like your homeowners insurance premium, is due, the lender will pay the insurance company directly out of the escrow account.

The amount required for your escrow account adjusts when the cost of your homeowners insurance or property tax changes. If you want to switch up your homeowners insurance policy, then your monthly payment amount may change to accommodate the new escrow requirements.

Escrow Account Overview

An escrow account is a third-party that holds funds earmarked for specific purposes. As a homeowner, your escrow account typically holds onto your homeowners insurance and property tax funds. In some ways, this account acts like a locked savings account to ensure you aren’t surprised by a hefty homeowners insurance premium or property tax bill each year.

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How To Change Homeowners Insurance With An Escrow Account: 7 Steps To Follow

Understanding the basic function of an escrow account is helpful. Knowing how to run through the process of changing your homeowners insurance when you have an escrow account is essential.

1. Do Your Research

The first step of changing your homeowners insurance is to do some research about what kind of policy best suits your needs. In the best-case scenario, a policy should strike an appropriate balance between coverage and cost. Plus, you should learn about any fine print that insurers like to tack on in your state.

Take some time to find the right policy for your situation. If possible, start this process well before you’re due to renew your policy to avoid any unnecessary stress.

2. Choose An Insurance Company

Every insurance company has a slightly different method of determining premiums. It’s a good idea to obtain multiple homeowners insurance quotes. When you compare quotes across multiple insurance companies, you can lock in the best rates for your situation.

3. Verify The Mortgagee Clause

A mortgagee clause protects the financial interests of your mortgage lender. When you sign up for a new homeowners insurance policy, you’ll need to list the mortgage lender.

But it’s not as simple as providing the lender’s billing address. In some cases, your mortgage company will provide a specific address to receive your insurance documents. It’s critical to provide accurate information because the insurance company will send updates about your policy to the lender.

In order to make sure you get the correct information for this clause, it’s worth giving your mortgage lender a call.

4. Buy The New Homeowners Insurance Policy

After you’ve verified the information in the policy’s mortgagee clause, it’s time to purchase the policy. Typically, you can complete this part of the process online. But some insurers require you to finalize the purchase through an agent.

Remember, this bill needs to be paid through your escrow account. With that, you won’t have to make a payment immediately. Instead, the insurance company will send the bill to your lender.

5. Cancel The Old Homeowners Insurance Policy

With your new policy in place, you can cancel your old policy. You can do this by contacting your old insurance company. In order to avoid a coverage gap or overlap, have the policy end on the same day that your new policy starts.

6. Get In Touch With Your Mortgage Lender

At this point, your mortgage lender should get a letter from your insurance companies. Your old insurance company will let them know that you canceled the policy and the new insurer will send them a bill.

While the lender should receive this information, it’s a good idea to give them a heads-up. A quick phone call can preemptively clear up any confusion.

7. Deposit Your Premium Refund

If you switch your homeowners insurance coverage in the middle of a term, you should receive a refund from your old insurance provider for the unused coverage.

You can choose to hang onto these funds. But if you do keep these funds, an escrow account shortage might lead to a higher monthly mortgage payment. Instead of waiting for an increase to your monthly payment, your lender may allow you to send the refund to your escrow account.

Every lender has a slightly different process for sending the refund to your escrow account. Get in touch with the lender to finalize the switch.

Need extra cash for home improvement?

Use your home equity for a cash-out refinance.

When Should You Change Your Homeowners Insurance With Your Escrow Account?

Let’s explore when it can make sense to change your homeowners insurance policy.

If You’re Hoping To Save Some Money

Shopping around for a new insurance policy could help you lock in a better rate for your homeowners insurance premiums. If you’re able to lower your homeowners insurance premiums, you’ll enjoy lower monthly mortgage payments.

If You’re Unhappy With The Service

Not all insurance companies are pleasant to deal with. If you aren’t happy with the service your homeowners insurance company provides, don’t hesitate to make a change.

If You’re Looking For Different Coverage

Every homeowner has a unique situation, which requires different coverage solutions. If your coverage needs change, your current insurer might not be the right fit. The good news is that you can find the coverage you’re looking for through a different company.

FAQs About Changing Homeowners Insurance With Escrow

Having the right answers to your homeowners insurance questions can help you make a more educated decision. Here are a few of the most common ones.

What are the pros and cons of switching my homeowners insurance when I have an escrow account?

The advantages of switching your homeowners insurance can include a lower rate, better service and more coverage options. But the downsides include taking the time to shop around for a new insurance company and filing out the required paperwork.

Is homeowners insurance built into escrow?

If you have an escrow account, your homeowners insurance is built into your monthly payment. Each month, the lender will set aside a portion of your monthly payment to cover this annual bill.

Should I change my homeowners insurance through my escrow account?

It’s possible to change your homeowners insurance through your escrow account. It might be a good idea if you want to find lower rates, different coverage or a better customer service experience.

Do I need to let my lender know I’m changing my homeowners insurance with my escrow account?

While your insurance companies should let your lender know about the changes you make, it’s a good idea to let your lender know yourself. A quick phone call to your lender about your insurance situation can help you avoid unnecessary confusion.

The Bottom Line

Changing your homeowners insurance with your escrow account might be necessary to lock in a lower insurance premium or more robust coverage options. As a homeowner with a mortgage, going through this short paperwork process can be well worth the effort.

If you’re interested in learning more homeowner tips, check out our servicing page.

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Sarah Sharkey

Sarah Sharkey is a personal finance writer who enjoys diving into the details to help readers make savvy financial decisions. She’s covered mortgages, money management, insurance, budgeting, and more. She lives in Florida with her husband and dog. When she's not writing, she's outside exploring the coast. You can connect with her on LinkedIn.