If you’ve owned your home for a while, you may want to refinance or contact your Aitken & Ormond Agent to start comparing quotes with different carriers. Then you remember: Your insurance premiums are paid through an escrow account.
You realize you’re not entirely sure what escrow means, and what happens if you change your insurance carrier. But changing homeowners insurance, even when it’s paid through escrow, is pretty painless. Just follow the steps below.
First, what’s an escrow account? If closing day was the last time you heard the words “escrow account,” here’s a quick refresher:
It’s where your lender stashes a portion of each mortgage payment you make. Your lender uses the funds to pay property tax and homeowners insurance bills on your behalf. Escrow makes paying taxes and insurance a “set it and forget it type of thing.”
Now that you remember how escrow works, let’s tackle the original issue: Changing homeowners insurance when the premiums are paid through an escrow account.
Give your mortgage servicer a heads-up. You don’t have to tell your mortgage servicer before changing your carrier, but you should. Cluing them in will let you know what to expect from the process and help you avoid inadequate coverage.
Your mortgage company wants to be sure the new policy will pay to replace your home if it’s completely destroyed.
If you change homeowners insurance without notifying your mortgage servicer, send a copy of the new declarations page and written notice that you canceled the old policy as soon as possible.
Another good tip is to buy the new policy before canceling the old. 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.
You may get a refund check for unused premiums if you cancel in the middle of your policy. But don’t rush out to spend it; you may need to return those funds to the escrow account to pay for the new policy.
Leave the rest up to your servicer. As soon as you schedule the switch, notify your mortgage servicer. Your records will be updated so future payments go to the right company.
If your new homeowner’s insurance policy premium is lower, switching may result in an escrow surplus check at the end of the year. If your new premium is higher, you may owe the escrow some money. But don’t worry about misdirected funds: Anything you’ve put into escrow will either come back to you as a refund or be used to pay future premiums.
As always contact your Aitken & Ormond Agent if you have any questions. We are here to help.