Young couple learning about home insurance and escrow.

Paying Homeowners Insurance Through Escrow

Updated January 1, 1 . AmFam Team

An escrow is a shared account with your lender that lets you set aside funds for property-related expenses. Learn about how change home insurance through escrow and how it affects bundled insurance.

If you just bought a home or are in the process of buying one, you’ll likely hear the term escrow when discussing how to fund your mortgage, insurance and taxes. As a way to help you keep your payments on track and your finances protected, your mortgage lender may require you to open an escrow account. But what exactly is an escrow account and how does it work?

We’ve explained what you need to know about escrows to help you better financially prepare as a homeowner.

What Is an Escrow Account?

You can think of an escrow account as a separate savings account with the sole purpose of holding money to pay for your home. An escrow account is shared by you and your mortgage lender to hold the funds for property-related expenses, such as taxes and homeowners insurance.

Your escrow account is designed to help you set money aside each month for bills that are typically due in a lump sum. So when it comes time to pay your taxes, home insurance or private mortgage insurance (PMI), you’ll have money set aside that your lender can take from the account and pay.

Using an Escrow Account for Insurance

While lenders usually require escrow accounts in order to avoid any missed payments on the property, there are benefits for you as well. Benefits of an escrow account include:

  • Your mortgage lender is responsible for making sure that your property taxes, homeowners insurance and PMI are paid on time. If there are any lapses in payments, the lender is responsible for late fees.
  • An escrow account makes it easy to put money aside to cover the large lump-sum payments associated with taxes and insurance. Basically, an escrow account simplifies your payments and ensures your bills will be paid.

Does Escrow Pay Home Insurance?

Typically, if you have a mortgage, your lender will require you to have home insurance — and they’ll also require you to use an escrow account to pay for it. This is because it’s a way for them to guarantee that you can make your payments.

However, if an escrow isn’t required based on the type of mortgage you have, you might be able to pay your taxes and insurance directly. In the case your lender lets you pay outside of an escrow account, pay one to two lump sums over the year and invest those payments instead of letting them sit in escrow.

How to Change Homeowners Insurance With Escrow

If you’re looking to change homeowners insurance providers, it’s actually an easy transition for a home buyer to make. In fact, it’s as simple as purchasing a new policy and notifying your lender as soon as the new policy has been purchased. This way they can send a check to the correct company and your insurance provider can add your new mortgage company to your policy. Want to learn more about changing home insurance with escrow? Here’s a closer look at how to switch homeowners insurance providers.

  1. Shop for a New Homeowners Policy
  2. Choose a New Provider and Sign the Paperwork
  3. Cancel Your Old Homeowner’s Policy
  4. Notify Your Lender

What If You’ve Bundled Your Homeowners Insurance in Escrow?

You may be nervous about switching homeowners insurance if your previous policy was bundled. Changing homeowner's insurance companies when you pay through escrow can be done in two ways.

  • Buy a new bundle that includes all of your insurance products
  • Compare the cost of the homeowners insurance portion of your bundle with standalone policies from other companies

Learn More About Homeowners Insurance

There’s a lot to understand when it comes to purchasing a home, but with the help of our home buyers guide, you’ll gain confidence in your home buying pursuit. And when it comes to home insurance, we’ve got you covered. Our American Family Insurance agents (Opens in a new tab) are dedicated to helping you not only customize your policy, but understand it too. Connect with yours today.

This article is for informational purposes only. This information does not, and is not intended to, constitute financial or legal advice.

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