Switching homeowners insurance can feel overwhelming, especially when you’re paying through escrow – but it is really not too complicated. Whether you’re looking for better rates or improved coverage, it’s important to understand the process. Here are five key things to know about switching your homeowners insurance when you have a mortgage.
5 Things to Know About Switching Your Homeowners Insurance When You Have a Mortgage
1. You Can Switch Insurance, Even if It’s Paid by Your Lender
Many homeowners think they can’t switch insurance policies because their current policy is “paid by the lender” or “included in the loan.” However, this simply means that your lender pays your insurance premiums through your escrow account. It’s not actually part of your mortgage loan. You have the flexibility to shop around for better coverage or rates without worrying about your loan.
2. Understand How Your Escrow Account Works
Your escrow account is essentially a savings account managed by your lender that holds funds for your property taxes and insurance premiums. When you switch your homeowners insurance, the new policy will also be paid from this account. Familiarizing yourself with how your escrow account functions is crucial, as it will affect your monthly mortgage payments and the overall management of your finances.
3. Will My Lender Pay My New Policy?
After switching to a new homeowners insurance policy, your lender should automatically pay the new premium from your escrow account.
Most of the time this is handled without issues. However, it’s wise to monitor this. There are times, however, when the mortgage company does not submit the payment or it gets lost in the mail. Be sure to reach out to them if you get a second notice regarding the payment so they can make sure that it is promptly applied and that your policy is not canceled for nonpayment.
4. What to Do When You Get the Refund Check
When you cancel your old policy, you may receive a refund check from your previous insurer. You need to apply that money back to your escrow account for your lender. This keeps your escrow balance accurate and prevents any confusion regarding your insurance premiums. Many lenders allow you to make this payment through their app or online system, or you can call them for assistance.
Since that is where the money came from to pay the former home insurance policy, it makes sense that the refund would need to go back into that account. Otherwise, it will look like your insurance premium is double what it should have been for the year since two payments were made. Your monthly mortgage payment will recalculate to reflect the total amount that was paid out and you will either be billed the amount needed to settle your escrow account, or they will increase your monthly mortgage payments so that the funds balance again.
5. Why Did I Get a Letter Asking for Proof of Insurance?
If your lender requires you to submit proof of insurance after switching policies, don’t panic! This is a common practice. When you cancel your former policy, your previous insurer will notify your lender that the old policy is no longer active. If your lender hasn’t received proof of your new policy, they may send you a letter requesting it. This can sometimes lead to the lender suggesting a more expensive policy if they don’t receive the proof in time. If this happens, just reach out to your insurance agent; they can help you provide the necessary documentation.
Have more questions? Want to see if you can find a better home insurance policy? Let Holley Insurance help! Call or text (540) 334-4225
