What to Know About Homeowners Insurance Refund Checks

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  • What to Know About Homeowners Insurance Refund Checks

Who doesn’t like getting a check in the mail? Free money! Right? Well, if you receive a refund check from your homeowners insurance company, you may need to delay your celebrations. The check should ultimately end up going back, at least in part, towards insurance payments, which, unfortunately, is more practical than it is joyous.

There are two common instances when you’ll get a home insurance refund check: when your lender made a mistake with your premium payment in escrow, often as a result of changing insurance carriers, or when you cancel a policy early. Let’s take a look at both scenarios.

Homeowners Insurance Refund Checks with Escrow

If you received a refund check from your home insurance company unexpectedly, you should call your provider and find out why. Most likely, it’s a result of changing home insurance carriers. If you pay your insurance through escrow, your lender may have made a payment to your old insurer instead of your new one.

You may also receive a check if you cancel your policy before it ends, which sometimes occurs when you sell your house.

Many people pay their home insurance premiums through an escrow account. Your lender sets up an escrow account to pay your taxes and insurance along with your mortgage payments every year so you don’t have to set money aside for the different dues monthly or quarterly. 

You’re allowed to change insurance companies whenever you want, though. In the process of changing your carrier and then notifying your lender, sometimes your mortgage company may pay your old insurance company a premium instead of paying your new, current company.

If this is the case, you’ll receive a refund check for the amount erroneously paid (it won’t go to your lender). When this happens, you should forward the check, or give the funds another way, to your lender as soon as possible so they can put it into your escrow account to pay your new insurer. 

It may be tempting to spend the money more fashionably. But, if you don’t give your lender the refund check, your escrow account might not have enough in it to pay your premiums. Or, if you do have enough, you may have a lower balance than usual. This could cause your lender to raise your mortgage payments down the line.

When you receive a homeowners insurance premium refund, it’s wise to contact both the insurance company that sent it and your lender to make sure the money gets used how it should. And, don’t forget that when you change home insurance carriers, you need to notify your mortgage company.

There are several reasons why you might want to change insurance providers. Whatever the reason, when you make a change, make sure you have new coverage in place before you cancel an old policy. You don’t want a lapse in coverage.

Insurers don’t like to see coverage lapses, and it could cause you to pay higher rates in the future. And, it’s against the rules of your mortgage. It could cause your lender to force place insurance on you – which gives suboptimal coverage at high costs.

Start shopping a month or so in advance before you plan on switching carriers, and you should compare multiple policies to know you’re getting the best rate.

Homeowners Insurance Refund After Sale of a House

The other instance when people often receive refund checks from their home insurance providers is after they sell their home and cancel their policy before it was scheduled to end. When you cancel your policy, you often receive a refund for the unused premiums if you paid in full in advance.

You can’t take your policy with you when you sell your house – you’d need a new policy for your new property. So, when you cancel your homeowners insurance when you move, you’re usually eligible for a refund of some of the premiums you paid since you’re not using the policy for its full life.

For a very simplified example, let’s say you paid $1,500 for 12 months of home insurance coverage, which is $125 per month. After 9 months, you move. You’ve used nine months of coverage, which comes to $1,125. You’d potentially be in line for a $375 refund for the unused three months of your policy.

Many providers will accommodate a homeowners insurance premium refund. When you call your carrier to cancel your policy when you move, you should ask about a refund. You shouldn’t cancel your policy when you’re moving until after someone has closed on your house.

You can usually get a refund from your insurer any time you cancel your policy early. Canceling while moving is just a common instance. You can switch homeowners insurance at any time. If you’re unhappy with your premiums or with the customer service of your current provider, know that you have options to change. 

At Clovered, we’re happy to help you find the coverage you need at the price you want. You can compare quotes entirely online, or you can call one of our licensed agents, who are happy to answer any questions.

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The editorial content on Clovered’s website is meant to be informational material and should not be considered legal advice.