Is Homeowners Insurance Included in a Mortgage?


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Key Takeaways

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Your escrow account is where you send payments for your mortgage, property taxes and insurance.

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You can pay your homeowners insurance yourself instead of through an escrow account if your lender allows it.

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Maintaining home insurance even after you pay off your mortgage protects you from unexpected events that could lead to damage and expenses.

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How Does Homeowners Insurance Work With a Mortgage?

Home insurance is often included in your mortgage payments through an escrow account, which most mortgage lenders require. An escrow account is essentially a savings account managed by your mortgage servicer, used to pay annual or biannual expenses like property taxes and insurance on your behalf. This arrangement makes managing housing expenses easier.

With an escrow account, expenses for principal, interest, taxes and insurance are combined into one monthly payment. The lender or loan servicer prorates these expenses and adds them to your mortgage payment. Having your property taxes and home insurance disbursements done through escrow ensures your premiums are paid on time and your lender's investment is protected.

ESCROW ACCOUNTS IN ACTION

Let's assume your monthly mortgage payment totals $2,200. Of this, $1,800 is directed towards repaying the principal and covering interest. The remaining $400 is placed into your escrow account, which functions as a financial reservoir that handles property tax payments and ensures your insurance premiums paid on time.

Is Homeowners Insurance Included in Closing Costs?

Depending on your lender, you might need to pay for the first year of home insurance premiums as part of your closing costs. This ensures the property is protected from the moment you take ownership and shields you and your mortgage lender from major financial loss if a disaster destroys the house. Alternatively, you can ask your lender if you can pay for your home insurance through your escrow account.

Do You Need to Pay Homeowners Insurance Through a Mortgage?

While you can pay your home insurance yourself instead of through an escrow, whether your lender will allow this depends on your type of mortgage, down payment size and equity. If you get the option to pay it yourself, you'll have greater control over your finances. Paying premiums directly to the insurer gives you more flexibility and understanding of your policy and makes it easier to switch providers.

For instance, you can choose how to pay, whether online or through the mail, and even select your payment frequency (monthly, quarterly or yearly). If you prefer a more hands-on approach to financial management, ask your lender if you can pay your home insurance yourself.

Benefits of Paying Homeowners Insurance Through Escrow

You're not required to pay home insurance through escrow, but many homeowners find it convenient. Escrow simplifies budgeting and keeps you compliant with your mortgage and insurance requirements.

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    Simplifies Budgeting

    An escrow account streamlines budgeting by bundling your home insurance premium and mortgage payment into a single transaction. This makes managing your finances easier.

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    Shifts Timely Payment Responsibility to Lender

    With an escrow account, your lender handles paying your insurance company according to your payment schedule — monthly, semi-annually, quarterly or annually. This keeps your coverage active and prevents accidental policy lapses.

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    Guarantees Mortgage Compliance

    Using escrow for insurance payments ensures you meet your mortgage lender's requirements. If your lender requires an escrow account, this approach keeps you compliant.

Do You Need Home Insurance After Paying Off Mortgage?

Even after your mortgage is paid off, home insurance remains essential financial protection. Your home is one of your biggest financial assets, and without insurance, you would bear the full cost of any damage or loss. While mortgage lenders require homeowners insurance, you should continue carrying coverage after paying off your home to protect against damage costs.

What Is Included in a Mortgage Payment?

A mortgage payment combines principal, interest, property taxes and often homeowners insurance. Understanding these components helps you manage your investment, as they determine your monthly cost and how you build home equity.

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    Principal

    The original amount borrowed. Every payment you make reduces this balance over the loan's term.

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    Interest

    The lender's charge for letting you borrow money. This is calculated using factors like your income, location and credit score.

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    Taxes

    Property tax payments made to the local government.

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    Insurance

    • Homeowners Insurance: Covers specific damages and incidents affecting your home.
    • Mortgage Insurance: Protects the lender if you default on the loan. This is often required based on your down payment size.
    • Additional Insurance: You may also need other coverage, such as flood insurance or hurricane protection, or optional policies, such as earthquake insurance.

Homeowners Insurance vs. Mortgage Insurance

You'll encounter two types of insurance when buying a home: homeowners insurance and mortgage insurance. Mortgage insurance, also called PMI, protects lenders if you can't repay the loan. Homeowners insurance protects you from damages to your home and belongings.

Both types of insurance are purchased by the homeowner or borrower. Below are the key differences:

Parameter
Mortgage Insurance
Homeowners Insurance

Who It Protects

Lenders

Homeowners and lenders

What It Does

Protects lenders against borrower defaults

Covers homeowners against damage to property and belongings

When Is It Needed?

For down payments less than 20%

Required by most lenders before loan approval

Term of Coverage

Can be canceled upon reaching 20% equity

Remains active as chosen by the homeowner, even after mortgage repayment

Is It Included In Your Mortgage?

Not part of your mortgage, but commonly paid through your mortgage payment via escrow

Not part of your mortgage directly, but can be paid through your mortgage payment via escrow

Is Home Insurance Included in Mortgage: Bottom Line

Understanding how home insurance works with mortgage payments helps you manage your financial commitments. Home insurance payments typically get included in your mortgage payment through an escrow account, which most lenders require.

Your lender sets up the escrow account to collect funds for property taxes and insurance, then pays these bills when they're due. Understanding how escrow manages your insurance payments helps you navigate your financial responsibilities.

Compare Home Insurance Rates

Ensure you're getting the best rate for your home insurance. Compare quotes from the top insurance companies.

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Home Insurance in Mortgage Payment: FAQ

Our answers to frequently asked questions below aim to help homeowners better understand the relationship between homeowners insurance and mortgages.

Is homeowners insurance paid through escrow?

Are property taxes included in the mortgage?

Is house insurance cheaper without a mortgage?

Does my mortgage company pay my homeowners insurance?

What happens to your mortgage if your home insurance is canceled?

Homeowners Insurance in Mortgage Payment: Our Review Methodology

Why Trust MoneyGeek?

MoneyGeek analyzed quotes from multiple insurance providers across the U.S. using a profile that reflects the average homeowner. By considering different locations and companies, we aim to give a reliable estimate of what homeowners can expect to pay — showing why it’s important to compare rates.

Methodology

MoneyGeek evaluated homeowners insurance carriers incorporating insights and premiums from the official databases of Quadrant Information Services.

Homeowner Profile

For our analysis, we created a sample homeowner profile with the following characteristics: 

  • Good credit score (769–792)
  • Home constructed in 2000
  • Wood-frame construction
  • Composite shingle roof

Homeowners Insurance Coverage Details

Unless otherwise specified, we used the following coverage limits to collect quotes for our comparison:

  • $250,000 in dwelling coverage
  • $125,000 in personal property coverage
  • $200,000 in personal liability coverage
  • $1,000 deductible

We also compiled data for policies with broader coverage to determine the best companies for insuring expensive homes, upping limits to $1 million in dwelling coverage, $500,000 in personal property coverage and $1 million in liability coverage.

Home Insurance and Mortgage Payment: Related Pages

About Mark Fitzpatrick


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Mark Fitzpatrick, a Licensed Property and Casualty Insurance Producer, is MoneyGeek's resident Personal Finance Expert. With over five years of experience analyzing the insurance market, he conducts original research and creates tailored content for all types of buyers. His insights have been featured in publications like CNBC, NBC News and Mashable.

Fitzpatrick holds a master’s degree in economics and international relations from Johns Hopkins University and a bachelor’s degree from Boston College. He's also a five-time Jeopardy champion!

Passionate about economics and insurance, he aims to promote transparency in financial topics and empower others to make confident money decisions.


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