You may be wondering if it is possible to change homeowner’s insurance midway through your policy term. The answer is yes, and it can be done in five simple steps.
When your homeowner’s insurance and property taxes are paid through an escrow account, you have the convenience and comfort of knowing your bills are being paid on time every month. But since escrow includes these expenses in your monthly mortgage payment, it is also easy to forget how much you are paying for insurance and how much you could potentially save by switching companies.
Changing homeowner’s insurance, even when it is paid through escrow, is pretty painless. Just follow the steps below.
First, What Is an Escrow Account?
Basically, Escrow refers to a third-party service that is part of every home purchase. When a buyer and seller initially arrive at a purchase agreement, they select a neutral third party to act as the escrow agent. The escrow agent collects a deposit from the buyer that is equal to a small percentage of the sale price. This deposit is known as “earnest money”. In exchange, the seller takes the property listing off the market. Until the final exchange is completed, both the seller’s property and the buyer’s deposit are said to be in escrow.
If closing day was the last time you heard the words “escrow account,” here is a quick refresher:
- This account is where your lender keeps a portion of each mortgage payment you make.
- Your lender uses the funds to pay property tax and homeowner’s insurance bills on your behalf.
- Escrow accounts are generally required if your down payment is less than 20%.
How Homeowner’s Insurance Works With Escrow
When you have a mortgage escrow account, a portion of your monthly mortgage payment is earmarked for your home insurance premium. Under escrow terms, you make a single monthly payment to your lender. A portion of this payment goes toward your monthly mortgage payment, and the rest is deposited into your escrow account. Your bill will clearly state how much of your payment is going toward paying off the house and how much is going into your escrow account.
How to Switch Homeowner’s Insurance Companies
Changing homeowners insurance providers with an escrow account is not any harder than if you were paying for insurance directly.
Step 1: Review Your Current Policy
To save yourself some time during the application process, be sure to thoroughly read through your existing homeowner’s policy to ensure that you will not incur fees or penalties for canceling your policy before the term expires. If you are unsure about your policy’s effective dates, your insurer can fill you in.
You will need to know your annual premium, coverage and deductible so you can compare it to similar policies. Look for this information in your policy documents or by logging on to your insurer’s website.
Watch for the mention of early cancellation fees as well. If there’s a penalty for canceling in the middle of your policy, you can still shop around. Just note the renewal date and plan to make the change then.
If you would rather wait until your policy expires rather than switch mid-term, let your lender know 30 to 60 days in advance so they do not make your policy renewal payment through your escrow.
Step 2: Shop for Better Rates
Once you have examined your current policy, find out whether it makes sense to switch by getting quotes from at least three other companies. Getting quotes from multiple companies gives you the opportunity to size up each company and policy option and provide a sufficient comparison against your current home insurance.
A lower premium, customized coverage and additional perks, such as free identity theft insurance, are all good reasons to change insurers. When comparison shopping, be sure you get quotes on identical homeowner’s insurance policies. This is where knowing your current policy inside and out comes in handy.
If you have refinanced or made significant home improvements, the home value on your policy might be outdated. You will want to provide the new insurer with a more accurate estimate.
Step 3: Notify Your Mortgage Company
Since your insurance is being paid through an escrow account, you will need to notify your lender of the switch so they can update their records and make the insurance switch . It is also possible that your new insurance company will contact your lender on your behalf but it is still a good idea to notify them yourself as well. Cluing them in will let you know what to expect from the process and help you avoid inadequate coverage.
Step 4: Finalize the New Policy Before Canceling the Old One
A lapse in coverage could spell trouble if Murphy’s Law strikes. Play it safe by scheduling your new policy to be active before the old one is canceled. As soon as you finalize your new homeowners insurance and have an official start date, contact your current insurer so they can set a cancellation date on your current policy.
Once you cancel your old policy, the insurance company may send both you and your mortgage company a cancellation notice confirming an end date to your policy. If you paid your premiums for the year in full and you canceled it before the end of the policy term, the insurance company should issue you a refund check for any unused premiums.
Step 5: Notify Your Escrow Company
As soon as you schedule the switch, notify your lender so they can update your records to ensure that future payments go to the right company.
If your new homeowner’s insurance policy is more affordable, switching may result in an escrow surplus check at the end of the year. If your new premiums are higher, or your state requires a minimum balance, you may owe the escrow some money.
Why Change Homeowner’s Insurance Companies?
There are several reasons to break up with your homeowner’s insurance carrier. Shopping around is a great way to make sure you get the best price, service and coverage.
Four common factors that might cause you to shop around are:
- Price – You might find a better home insurance price, even when considering loyalty discounts or other price breaks your current insurer offers.
- Discounts – Another homeowner’s insurance company might offer big price break if you bundle your auto and home insurance.
- Service – Consider shopping around if you are not completely satisfied with the service you received when making your last insurance claim with your current insurer or if customer service for any reason is less than optimal.
- Coverage – Perhaps you want additional insurance or less restrictive coverage than you can get with your current carrier.
Does Changing Homeowner’s Insurance Cost Any Money?
No, regardless of whether you change your homeowner’s insurance at renewal or in the first couple months of your policy term, you should not incur any additional fees. Some insurance companies may charge you a cancellation fee for a small amount, like $25, but even this is fairly rare.
One thing to keep in mind is banks often charge more than what you actually owe in insurance and taxes. They do this to prevent your account from shorting in the event of unexpected insurance and tax increases. For that reason, escrow payments are generally more expensive than paying your insurance or taxes directly.
Do I Have to Pay Homeowner’s Insurance Through Escrow?
Lenders often require escrow accounts for insurance and property taxes if your down payment is less than 20% of the home’s sale price. If a year or two passes and your account is in good standing with no missed payments, you may be able to get rid of your escrow account via an escrow waiver or cancellation form provided by your lender.
What Happens at Citrus Heritage Escrow?
Your escrow officer follows instructions on your contract, coordinates deadlines, and gathers all necessary paperwork. For example, written requests for payoff information (called “demands”) are sent to the Seller’s mortgage company and any other lien holders.
During the escrow period, the title company coordinates with Citrus Heritage Escrow and begins researching and examining all historical records pertaining to the subject property. Barring any unusual circumstances, a commitment for title insurance is issued, indicating a clear title or listing any items which must be cleared prior to closing. The commitment is sent to you for review.
When choosing an escrow company there can be many important factors to evaluate. Fees, location, staff and even recommendations from friends and colleagues are all things to consider. With Citrus Heritage Escrow by your side, you can rest assured that when you receive your settlement check, you’ve gained the maximum benefit from your home sale or purchase.
Call us today with any questions or concerns. Our professional Escrow Agents will help you through this exciting yet confusing process. (951) 335-7200