Is Homeowners Insurance Paid Through Escrow?

If you still owe a lender for the amount borrowed on your home — and you want to get a great interest rate on your loan — there’s a sweeping chance that you’ve got an escrow account set up to take care of the dirty work.

While escrows can be a relatively great way to set and forget your home insurance, you should always be reviewing your policy at least once a year to ensure you’re not paying too much. But let’s take a look at how escrow accounts relate to your homeowners insurance policy.

Yes, paying homeowners insurance through escrow is generally how your premiums are paid each month, as well as your property taxes. You pay a certain amount of money toward your mortgage each month, which goes to principal, interest, and escrow.

It doesn’t matter how your homeowners insurance company charges premiums. It could be monthly, once every six months, or have to be paid in full once a year. You put a designated amount of money into your lender’s escrow account each month. That money is then compiled over the designated period of time to pay for your homeowners insurance.

But just because your escrow account pays your homeowners insurance (along with a few other monthly bills relating to your home), that doesn’t necessarily mean you have to pay homeowners insurance through an escrow or that it’s tough to switch home insurance companies.

If you’re wondering why homeowners insurance come out of escrow, the answer is more straightforward than you might think. Escrow is an account that you pay into to help you organize your regular expenses related to owning a home. You can pay for your home insurance through escrow, as well as your property taxes, homeowners association fees, and other payments you may owe. 

Lenders may require you to pay your homeowners insurance premiums through an escrow account to ensure the payments are made when they’re due. Since many mortgage lenders require homeowners to maintain a homeowners insurance policy, an escrow account is a tool they use to ensure paying your premiums is as easy as possible. 

Homeowners insurance is paid through your mortgage payments if you use an escrow account. A portion of the total mortgage payment you owe goes toward your homeowners insurance premiums, if your escrow account is set up to do so. While you may be paying the two together, the amounts are going to your mortgage lender and your insurer, respectively. 

An escrow account is just that – an account. It’s where money for payments is housed. Thus, you can pay your mortgage, insurance premiums, property taxes, and other regular payments related to your real estate with the money you put into the account. 

But if you own your home outright, there’s no need for an escrow account and you can simply pay your homeowners insurance directly for your premiums. Unfortunately, not everyone is lucky enough to have the cash on hand to put 100% capital into their new home.

But having an escrow account is not a bad thing at all. In fact, many people see it as a perk of being a homeowner. After all, many homeowners insurance companies charge premiums as a lump-sum payment upfront, or they take quarterly or bi-yearly payments.

For homeowners stuck paying the latter two options, that means you could be forced to pay $2,500, $5,000, or maybe even more (depending on the state you live in, the size of your home, and coverage amounts) at once.

With an escrow account, these lump-sum payments are theoretically divided into monthly payments because you pay the same amount of money into your escrow every month. So if your homeowners insurance doesn’t have monthly payment options, you’re in luck with an escrow account.

No, your mortgage and insurance in escrow are separate. While your mortgage company may set you up with an escrow account, they’re not responsible for making any of your payments. Instead, you pay into your escrow account to pay for your insurance, mortgage, and other regular payments when they’re due. 

When you get a mortgage and while you still carry a balance on said mortgage, your lender sets up an escrow account to ensure good-faith payments of your home’s principal, interest, homeowners insurance and property taxes. About 80% of mortgage holders have an escrow account.

While you still owe money to your lender, they technically still own the home — or at least a portion of it. Escrow accounts are designed to protect their investment, as well as to make sure your accounts don’t fall into default and that you maintain adequate homeowners insurance while they’ve still got money in the game.

No, you don’t have to pay your homeowners insurance through escrow. However, if you’re going to carry a loan on your home and still owe money to the lender, many lenders will require you to have an escrow account set up.

One of the most common myths about paying for homeowners insurance is that it must be done through escrow. While paying through escrow is a viable option for many homeowners out there, it’s not the only one.

If you have more than 20% equity invested in your home, you may be able to convince your lender that you no longer need an escrow account. If that doesn’t work, you can typically refinance your home with another lender that doesn’t require escrow accounts. However, the latter option will typically result in a less-than-favorable interest rate on your refinanced mortgage.

No, homeowners insurance isn’t included in escrow. Escrow is an account, usually provided by a lender, that a homeowner can use to organize their regular home payments and ensure they’re made on time. While the escrow account may be provided, the account holder must deposit funds into the account. 

Many homeowners opt to set up their escrow account to pay their homeowners insurance premiums. From this perspective, yes, homeowners insurance may be included in your escrow account, if you have it set up to do so. While your homeowners insurance premiums may be paid using an escrow account, you must deposit money into the account in order for the payments to be made. 

If information about your escrow account still seems a bit unclear, don’t worry, you aren’t the only one. Many homeowners don’t completely understand how their escrow account works. So, let’s find out some more information, like how do you change homeowners insurance with an escrow account.

Changing homeowners insurance with an escrow account isn’t as complicated as you may think. All you need to do is find a new policy, bring it to your lender and escrow provider, cancel your old policy and you’re good to go.

In fact, finding a new homeowners insurance policy is quick and easy with Clovered. Our intuitive online quoting tool compares multiple policies from the country’s top home insurance companies to pair you with the perfect policy at the perfect price.

While the process of how to switch homeowners insurance with escrow is relatively straightforward, removing insurance from escrow is more challenging. Since lenders want to ensure their investment in your home is protected, the option to remove your policy from your account may not be available. 

Switching homeowners insurance with escrow to drop a policy completely has several requirements. To obtain an escrow waiver, you’ll need good credit, sound equity in our home, and you may even need a certain loan type. For example, if you have a Federal Housing Administration (FHA) home loan, you likely won’t qualify for an escrow waiver. 

It’s a good idea to contact your lender if you’re thinking about removing your home insurance from your escrow account. They can tell you their stipulations and if you’re qualified to make this change.