Changing Homeowner’s Insurance When You Have an Escrow Account
With insurance rates skyrocketing over the past few years, many homeowners are shopping for more affordable policies rather than simply renewing their existing ones. Reviewing your deductible and coverage limits annually is always a good idea, especially when replacement costs have increased. What many homeowner’s forget to consider is looping everyone into the conversation. If your homeowner’s insurance premiums are paid through an escrow account as part of your monthly mortgage payment, you will need to work with your mortgage company to connect the servicer with your insurance provider.
Failing to notify your mortgage servicer of an insurance policy change can result in canceled coverage, duplicate payments, or confusion with your mortgage servicer. Here’s what you need to know before making the switch.
Why Homeowners Change Insurance Companies
There are several reasons homeowners decide to shop for a new insurance policy:
- Lower premiums that can reduce annual housing costs.
- Better coverage or higher policy limits.
- Improved customer service or claims experience.
- Bundling home and auto insurance for additional discounts.
- Changes in the insurance market that make another carrier more competitive.
- Life changes such as home renovations, purchasing valuable belongings, or adding rental coverage.
Whatever your reason, changing insurance can be a smart financial decision as long as it’s handled correctly.
What to Consider When Shopping for Homeowner’s Insurance
Price is important, but it shouldn’t be the only factor.
Before selecting a new policy, compare:
- Coverage limits for your home, personal property, and liability.
- Deductibles and how much you’ll pay out of pocket if you file a claim.
- Replacement cost versus actual cash value coverage. *This expense has increased in the past few years. If you haven’t increased the dollar amount for replacing your home, you should definitely review your current amounts.
- Exclusions or limitations for water damage, wind, hail, or other common risks in your area.
- Available discounts for security systems, bundled policies, or claim-free history.
- Financial strength and reputation of the insurance company.
- Customer reviews and claims satisfaction. A lower premium is great but it cannot replace the value of a reliable and efficient claims process.
Don’t skip to the price, be sure to compare what the policy provides to ensure similar protection, not just monthly cost.
Know Whether Your Mortgage Includes an Escrow Account
If your homeowner’s insurance is included in your monthly mortgage payment, your lender likely collects insurance premiums through an escrow account.
Instead of paying your insurance company directly, your mortgage servicer pays the annual premium on your behalf.
If your mortgage servicer is not aware of the policy change, they will not know the correct company to pay or the proper amount. That could result in them continuing to pay on an old, outdated policy.
The Correct Order for Changing Insurance
Following these steps can help prevent coverage gaps and payment issues.
1. Shop for a New Policy
Gather quotes from multiple insurance companies and compare coverage carefully.
Choose the policy that best fits your needs.
2. Inform Your Mortgage Servicer
Before your new policy becomes effective, contact your mortgage servicer.
Provide:
- Your new insurance company’s information.
- The policy number.
- The effective date.
- Any documentation they request.
This allows the mortgage company to update its records and send future escrow payments to the correct insurance carrier.
3. Start the New Policy
Schedule the effective date so it begins before or on the same day your current policy ends.
Avoid even a single day without homeowner’s insurance coverage. Mortgage lenders require continuous insurance protection while your loan is outstanding.
4. Confirm the Escrow Payment
Monitor your escrow account to ensure your mortgage servicer sends payment to the new insurance company.
It’s a good idea to verify with both the insurance company and your mortgage servicer that the first payment has been received and processed correctly.
5. Cancel Your Old Policy
Only after your new policy is active and you’ve confirmed your mortgage servicer has updated its records should you cancel your previous policy.
Canceling too early could leave you uninsured or create unnecessary complications. Don’t worry, your previous insurance company will refund you for the prorated amount of days.
Who Needs to Be Notified?
Changing homeowner’s insurance typically involves three parties:
Your new insurance company
- Issues the new policy.
- Provides proof of insurance.
- Coordinates policy start dates.
Your mortgage servicer
- Updates escrow records.
- Pays the new insurance premium from your escrow account.
- Confirms your home remains properly insured.
Your previous insurance company
- Cancels the old policy after the new coverage is active.
- Issues any applicable premium refund.
Watch for Escrow Adjustments
After changing insurance, your escrow payment may change.
If your new annual premium is lower, your future monthly mortgage payment could decrease. If your premium increases, your mortgage payment may also increase to cover the higher insurance cost.
Your mortgage servicer will typically review your escrow account during its annual escrow analysis and notify you of any payment adjustments. If you receive a refund for overpayment, we typically recommend rolling that into your next escrow payment. It helps you get ahead of increases in coverage cost that are likely from year-to-year.
Reviewing your insurance options is a smart way to ensure you’re keeping costs down while maintaining reasonable coverage. The key is to make sure you communicate any changes with everyone involved.