How to Change Homeowners Insurance With an Escrow Account

Homeowners often seek to adjust their insurance policies to find more favorable rates or enhanced coverage options. When a mortgage includes an escrow account, the process of changing homeowners insurance involves coordinating with the mortgage lender, as they manage the insurance premium payments on the homeowner’s behalf. Understanding this relationship is important for a smooth transition between policies.

Understanding Escrow and Home Insurance Payments

An escrow account is a financial arrangement managed by a mortgage lender to collect and disburse funds for specific property-related expenses, including homeowners insurance premiums. Each month, a portion of the homeowner’s mortgage payment is allocated to this account, accumulating until the annual insurance premium is due.

When the homeowners insurance premium becomes payable, the mortgage lender uses the accumulated funds from the escrow account to remit payment directly to the insurance carrier. This system ensures that insurance coverage remains active throughout the loan term, protecting both the homeowner’s and the lender’s financial interests in the property. The lender must be fully informed and approve any changes to the homeowners insurance policy to ensure continuity of coverage and proper payment processing.

Steps to Change Your Home Insurance

Changing homeowners insurance with an escrow account requires careful coordination to avoid any lapse in coverage. The process begins with obtaining quotes from various insurance providers to compare coverage and costs. Once a new policy is selected, notify your existing insurance carrier of your intention to cancel their policy, providing the effective date of the new coverage.

Next, inform your mortgage lender about the impending change. You will need to provide them with details of the new policy, including:
The new insurance carrier’s name
The policy number
The effective date of coverage
A copy of the new policy’s declaration page

This document summarizes policy details, such as coverage limits, deductibles, and the annual premium. The lender will also require confirmation that their mortgagee clause is listed on the new policy.

Communication with your lender can occur through various channels, such as a secure online portal, email, traditional mail, or a direct phone call to their escrow department. It is advisable to follow up any verbal communication with written confirmation to maintain a clear record. Ensuring the new policy is active before the old one is canceled is important to prevent any gaps in coverage. A new policy should be secured and the lender notified at least 15 to 30 days before the desired effective date.

What Happens After the Change

After providing all necessary documentation to your mortgage lender, several financial adjustments related to your escrow account will occur. The old insurance policy’s unearned premium will be refunded. This refund is sent directly to your mortgage lender and deposited back into your escrow account.

Once the refund is processed and the new policy’s premium is paid from the escrow account, your lender will conduct an escrow analysis. This analysis reviews the debits and credits within the account, including the new insurance premium amount. Based on this review, your monthly mortgage payment may be adjusted to reflect the new insurance cost, ensuring the escrow account maintains a sufficient balance. Monitor your monthly mortgage statements and annual escrow statements to confirm the new policy is reflected and any refunds or adjustments have been accurately applied.