If you’re considering changing your homeowners insurance company but have an escrow account, it’s essential to understand the process and potential challenges that may arise.

While having an escrow account can add complexity to the task, switching insurance providers seamlessly doesn’t have to be complicated.

In this blog post, we’ll walk you through the steps to change insurance companies without disrupting your escrow account.

Understanding Escrow Accounts

Before delving into changing insurance companies, let’s start by understanding what an escrow account is and how it relates to your insurance.

An escrow account is typically set up by your mortgage lender to hold funds for property-related expenses, such as property taxes and homeowners insurance.

Each month, a portion of your mortgage payment goes into the escrow account, and when these bills are due, the lender pays them on your behalf.

With the escrow account, your mortgage company will typically pay the insurance company the annual premium shortly before the renewal is due.

Changing Insurance Companies with an Escrow Account

Research and Select a New Insurance Provider

Start by researching and comparing insurance companies to find one that offers the coverage you need at a competitive price. Consider factors such as customer service, coverage options, and financial stability.

It is also important to note that this change can be made anytime during the year. You can switch before renewing your escrow account or your current home insurance policy.

Working with an independent insurance agent can eliminate the need for multiple phone calls or inquiries to get quotes. Independent agencies work with numerous companies to provide specialized coverage for various needs.

Notify Your Current Insurance Company

If you decide to change insurance companies, inform your current insurance company of your decision to switch providers. Provide them with the effective date of your new policy and confirm the cancellation date of your existing policy. It’s important to ensure no lapse in coverage during the transition.

In many cases, your new insurance agent or agency can help you with this process. Standard industry forms can be signed and submitted as a written confirmation of your desire to change insurance providers.

Notify Your Mortgage Lender & Provide Documentation

Reach out to your mortgage lender to inform them of the upcoming change in insurance. Provide them with the details of your new insurance policy, including the effective date and the insurance company’s contact information.

Again, your new insurance agent or agency can provide your lender with the proper documentation to show proof of coverage for the new company. This could include a declaration page, proof of insurance, or other forms the lender requires.

Your lender will need this information to update the escrow account and ensure that your new insurance provider receives payment promptly.

What To Do With The Refund?

Once you have submitted the proper cancellation forms to your previous insurance company, they will cancel your policy and issue you a refund for any unused premium. Although you have an escrow account, and your mortgage provider made the annual payment, this refund will be returned to you since the home insurance policy is in your name.

It is important to reach out to your mortgage lender to let them know that you have the refund. 

Typically, there are two primary options with how to handle the refunded premium:

Refund to the Mortgage Lender

Your mortgage lender may require that you endorse the refund check received by the insurance company and give it to them to be deposited back into your escrow account. This will help ensure that your escrow account is not out of balance, causing a shortage in the future.

With this option, there will likely be a new Escrow Analysis completed, which would likely lower your monthly payment if you found insurance coverage with a lower annual premium.

Payment To The New Insurance Company

Certain mortgage lenders will only pay for the insurance premiums one time per year. If this is the case with your lender, you will likely need to deposit the check into a personal checking account and submit payment to your new insurance company for the annual premium. 

With this option, you will not see a change in your monthly mortgage payment, because no change was made to your escrow account.

In many cases, your new agent or agency will be able to help you with this process as well, and can help communicate the best option based on advice from the mortgage company.

Monitor the Transition and Address Any Issues

Keep a close eye on the transition process to ensure your new insurance policy is updated in your escrow account. Confirm with your lender that the old insurance payments are stopped and that the new payments are set up correctly.

If you encounter any issues during the transition, such as delays in updating the escrow account or processing payments, be proactive in addressing them. Contact your new insurance company and mortgage lender to resolve any issues promptly.

Once the transition is complete, verify with your mortgage lender that the new insurance policy is correctly reflected in the escrow account and that all payments are processed as intended.

Conclusion

Changing insurance companies when you have an escrow account may require additional coordination, but you can make the switch smoothly with careful planning and communication.

Following these steps and staying proactive throughout the process ensures that your escrow account remains in good standing while transitioning to a new insurance provider.