Escrow for Home Insurance

Escrow for Home Insurance

If you own a home, you've probably heard of an escrow account.  You've probably also had at least some interaction with your escrow account, and chances are that interaction may not have been positive.  Read on to learn more about these accounts and how Levin Insurance Agency works to help keep your experience positive!

An escrow account is the account where funds are held for property taxes and home insurance for your home.  When you have a mortgage, you have the option to have (or sometimes you are told you must have) an escrow account.  With this option, you will include roughly 1/12th of your annual property tax and home insurance amounts along with your monthly mortgage payment.  These funds will be deposited in an escrow account and then, one per year for home insurance, usually twice per year for taxes, your mortgage company will release funds to pay the respective bills.

An escrow account can be both a blessing and a curse.  It's a blessing because you don't have to come up with a big chunk of money once or twice every year to pay for your taxes and insurance, and it's a curse because any changes to your tax or insurance amounts can send your account into a tailspin - and mess with your mortgage payment at the same time.

We'll focus on the insurance piece, since that's our area of expertise.

Whether or not you have an escrow account, when you switch home insurance, one thing in the same: when you cancel your previous home insurance policy, you will receive a refund of any premium that was paid and not used, also known as unearned premium.  For example, if your insurance was paid in full for a year and you switch insurance halfway through your policy term, you'll get roughly half of your premium back from your previous carrier.  If you switch at the end of your term, you likely won't receive a refund.

If you receive a refund, there are two things you could do with it - you could keep it, or you could use it to pay for your new insurance policy.  We don't recommend the former, as that money is intended to pay for the policy, not to be extra income.  So now you know that you should use any refund to pay for your new insurance policy.  How does that work?

If you have an escrow account, one of two things will happen.  Your mortgage company will receive a bill from the new insurance company and they will either pay the bill or they won't.  If they pay the bill, everything is simple and you should put your refund in the bank and, when you make your next mortgage payment, you should send extra in the amount of the refund and earmark it for your escrow account.  This will replenish your escrow account so you don't encounter the dreaded escrow shortage.  If your mortgage company doesn't pay the bill, that's usually because they have a policy to old send one payment per year.  If they already paid your insurance this year, they won't pay it again, even if you switch carriers.  In that case, you'll be responsible for paying for this year's home insurance premium and your mortgage company will pay it next year and beyond.  How do you pay for this year's premium?  With the refund!

The name of the game is really just understanding how your specific mortgage company handles things and communicating.  You and your insurance agent should be making a conference call to the mortgage company to let them know a change is coming and to find out how they will handle payment.  When you know this information up front, and they know a change is coming, 99.9% of all escrow issues can be avoided.

At Levin Insurance Agency we are very well versed in all things escrow and mortgages.  We don't want the fear of switching your home insurance prevent you from being able to save money.  Call us at (248) 531-8300 and we will be happy to answer any questions or concerns you have about this often-misunderstood topic!

 

Levin Insurance Agency - Many Options, One Choice