Switching homeowners insurance with an escrow account is straightforward but requires careful coordination with your mortgage lender. They must be informed of your intention to change insurers to ensure they approve and make adjustments to your escrow account. Once approved, your lender will update the escrow payments, maintaining seamless protection for your home.
How Do You Change Homeowners Insurance With an Escrow Account?
Changing homeowners insurance with an escrow account is a simple process that begins with coordinating with your mortgage lender and purchasing a new policy. This ensures no lapses in coverage.
Mark Fitzpatrick
Head of Insurance, MoneyGeek
Mark Fitzpatrick is a Licensed Property and Casualty Insurance Producer and MoneyGeek's Head of Insurance. He has analyzed the insurance market for over five years, conducting original research and creating personalized content for every kind of buyer. He has been quoted in several insurance-related publications, including [CNBC](https://www.cnbc.com/2020/04/15/cant-keep-up-with-insurance-premiums-heres-what-to-do.html), [NBC News](https://www.nbcnews.com/business/autos/flooded-cars-are-problem-their-owners-future-car-buyers-n1278493) and [Mashable](https://mashable.com/article/tesla-insurance-rates). Fitzpatrick earned a master’s degree in economics and international relations from Johns Hopkins University and a bachelor’s degree from Boston College. He is passionate about using his knowledge of economics and insurance to bring transparency around financial topics and help others feel confident in their money moves.
Rae Osborn
Content Editor
Dr. Rae Osborn is a MoneyGeek content editor with over seven years of editing experience and over 20 years of experience in publishing and writing science content. She also works as a science researcher, writer and editor and a professional reviewer for Science Reviews and Advances in Entomology.
Mark Fitzpatrick
Head of Insurance, MoneyGeek
Mark Fitzpatrick is a Licensed Property and Casualty Insurance Producer and MoneyGeek's Head of Insurance. He has analyzed the insurance market for over five years, conducting original research and creating personalized content for every kind of buyer. He has been quoted in several insurance-related publications, including [CNBC](https://www.cnbc.com/2020/04/15/cant-keep-up-with-insurance-premiums-heres-what-to-do.html), [NBC News](https://www.nbcnews.com/business/autos/flooded-cars-are-problem-their-owners-future-car-buyers-n1278493) and [Mashable](https://mashable.com/article/tesla-insurance-rates). Fitzpatrick earned a master’s degree in economics and international relations from Johns Hopkins University and a bachelor’s degree from Boston College. He is passionate about using his knowledge of economics and insurance to bring transparency around financial topics and help others feel confident in their money moves.
Rae Osborn
Content Editor
Dr. Rae Osborn is a MoneyGeek content editor with over seven years of editing experience and over 20 years of experience in publishing and writing science content. She also works as a science researcher, writer and editor and a professional reviewer for Science Reviews and Advances in Entomology.
Updated: October 3, 2024
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Table of Contents
Key Takeaways
Switching homeowners insurance with an escrow account is straightforward but requires coordination with your lender to prevent coverage gaps.
Paying homeowners insurance through an escrow account ensures timely payments, simplifies budgeting and reduces the risk of insurance lapses.
While not mandatory, using an escrow account for insurance payments is often required by lenders and offers financial management benefits.
How to Switch Home Insurance With an Escrow Account
It's possible to switch home insurance providers with an escrow account, and it will only require notifying your lender and ensuring no gaps in coverage. Start by shopping around and selecting a new homeowners insurance policy that fits your needs and budget.
You can only cancel your old insurance policy after your new policy is active and your lender has updated their records. Keep a record of all correspondence and confirmations related to these insurance changes to safeguard against any misunderstandings or errors in your mortgage and insurance documents.
Follow these steps to ensure your switch is as smooth as possible:
Select a New Home Insurance Policy
Research and compare different home insurance policies to find one that meets your coverage needs and budget. Consider factors such as deductibles, coverage limits and customer service ratings.
Notify Your Mortgage Lender
When you change homeowners insurance, your escrow account needs to be updated. Inform your lender about your decision to switch insurance providers and give them details of your new policy. Request written confirmation from your lender that they have received the information and are processing the changes to your escrow account accordingly.
Cancel Your Old Insurance Policy
Confirm that your new insurance is active and that your mortgage lender has updated their records before you proceed with canceling your old policy. This ensures you are not left without coverage at any point.
How Homeowners Insurance Works With an Escrow Account
Mortgage lenders often require homeowners to have insurance, which is typically paid through an escrow account. Escrow is a tool that holds funds in a separate account where your mortgage lender can collect a portion of your monthly mortgage payment to cover property taxes and homeowners insurance.
This arrangement ensures that funds will always be available for these important payments, and it spreads the cost over the entire year, making it more manageable for homeowners. An escrow account acts as a safety net for both lender and homeowner — by automatically allocating funds to insurance and taxes, it minimizes the risk of lapses or tax delinquencies.
When You Would Change Homeowners Insurance With an Escrow Account
There are several reasons you might change your home insurance provider, such as finding a better rate, experiencing different coverage needs or simply wanting a different provider. While your insurance may be connected to your escrow, you can change your provider at any time and for any reason.
Here are some specific scenarios when you might consider changing your homeowners insurance provider with an escrow account:
Better Insurance Offers
If you discover another insurance company that offers lower premiums for the same level of coverage, switching can save you money annually, which is reflected in reduced escrow payments.
Change in Coverage Needs
Significant changes to your property, such as a home addition or major renovation, might necessitate more comprehensive coverage, prompting a switch to a provider that offers tailored policies that meet your new needs.
Customer Service and Satisfaction
If you are dissatisfied with your current provider’s customer service or claims handling, finding a company with a reputation for excellent customer support and efficient claims processing might be wise.
Availability of Additional Benefits
Some insurers might offer additional benefits like lower deductibles, identity theft protection or better valuables coverage, which could justify switching if these benefits align closely with your current needs.
Are There Any Risks When Changing Home Insurance Companies?
Changing homeowners insurance providers can bring several risks, especially if not managed carefully, such as coverage gaps and escrow account errors. Additionally, there could be administrative errors when updating your escrow account details, leading to missed or incorrect insurance payments and affecting your coverage.
- Coverage Gaps: Failing to align the end date of your old policy and the start date of your new policy can result in a coverage gap, leaving your property temporarily uninsured.
- Escrow Account Errors: Incorrect or delayed updating of insurance details in your escrow account can lead to payment issues, such as insufficient funds being collected to cover the new premium, which may result in policy cancellation.
- Underestimating Coverage Needs: The new policy might not cover all the aspects that your previous policy did, potentially leaving you underinsured without realizing it.
Each of these risks underscores the importance of careful planning and coordination when changing your homeowners insurance, especially when an escrow account is involved. Make sure you know how to manage these risks before changing providers.
Can I Remove My Home Insurance From Escrow?
You can typically remove your home insurance from escrow, but this is usually allowed only after a certain period, such as when you have built up enough equity in your home or after the initial loan agreement period ends. It's essential to consult with your lender to understand their specific requirements and any potential implications for your mortgage agreement.
Removing insurance payments from your escrow can give you more direct control over your insurance payments, but it also means you'll be responsible for ensuring that these payments are made on time to avoid policy lapses, which could severely impact your financial security.
Is It Better to Pay Homeowners Insurance Through Escrow?
Paying homeowners insurance through escrow is generally considered advantageous for several reasons including streamlined payments and lender assurance. It simplifies the budgeting process by dividing the annual insurance cost into manageable monthly payments that are collected along with the mortgage payment.
Here are other reasons why it’s better to pay homeowners insurance through escrow:
Streamlined Payments
Combining insurance payments with your mortgage into one automated monthly payment simplifies your financial management and budgeting.
No Missed Premiums
With automatic deductions, there's less risk of forgetting to make an insurance payment, which helps maintain continuous coverage without interruption.
Lender Assurance
Lenders prefer escrow payments because it reduces the risk of being uninsured. This protects their investment in your property as well as your own.
Budgeting Ease
Spreading the cost of your homeowners insurance over the year can make it easier to handle financially, avoiding the burden of a large, one-time payment.
FAQ
Home finances can bring up many questions, especially concerning escrow accounts and insurance payments. Understanding these components is essential to managing your home's financial obligations effectively. Below, we address some of the most frequently asked questions about escrow accounts and their role in paying for homeowners insurance.
An escrow account is a financial arrangement managed by your mortgage lender to facilitate the payment of your property taxes and homeowners insurance. By collecting these funds as part of your monthly mortgage payment, the lender ensures that these critical payments are made on time, safeguarding both their investment and your property.
While not universally mandatory, paying for homeowners insurance through an escrow account is often required by lenders as part of the mortgage terms. This arrangement helps ensure that insurance payments are never overlooked, maintaining essential coverage. You may choose to pay your homeowners insurance by yourself if your loan agreement allows, typically after achieving a certain equity threshold or meeting other specific lender criteria.
About Mark Fitzpatrick
Mark Fitzpatrick is a Licensed Property and Casualty Insurance Producer and MoneyGeek's Head of Insurance. He has analyzed the insurance market for over five years, conducting original research and creating personalized content for every kind of buyer. He has been quoted in several insurance-related publications, including CNBC, NBC News and Mashable.
Fitzpatrick earned a master’s degree in economics and international relations from Johns Hopkins University and a bachelor’s degree from Boston College. He is passionate about using his knowledge of economics and insurance to bring transparency around financial topics and help others feel confident in their money moves.