If you own a home, you likely have homeowners insurance. Though the government doesn’t require it, if you have a mortgage, it is likely a requirement of your lender.1 Naturally, you want the best homeowners insurance for your living situation, but sometimes your situation changes. And that could mean you’ll need to change your homeowners insurance company. You might want to do this for several reasons, from inadequate coverage, increasing premiums, lack of discounts, or poor customer service to moving to a new home or wanting to bundle policies, like home and auto, with the same company for additional savings.2
Because many insurance payments come directly from escrow, you might think changing insurance providers is a tedious process. However, understanding how to change homeowners insurance is much easier than you might think. If you keep a few key steps in mind, making the switch can be a seamless transition to better coverage.
What is an escrow account?
Escrow is a legal agreement where a third party temporarily holds money or property until a specific condition is met, such as when a purchase agreement is filled. In real estate, there are two ways escrow is used. One escrow account is used during the home buying process as a good faith deposit to protect the buyer and seller and ensure that the money goes to the correct party as stated in the conditions of the sale. The other escrow account is used for the life of your loan.3
In that account, a single monthly payment is made to your lender that covers your mortgage, your homeowners insurance premium, and other financial obligations like property tax and administrative fees. If the down payment on your home was less than 20%, it’s almost guaranteed that you’ll have to establish an escrow account, and if you have an escrow account, you’ll need an active policy for homeowners insurance.
Essentially, your lender creates an escrow account for you and uses your payments to pay the mortgage, homeowners insurance bill, property tax, etc., all in one shot, which makes all these various payments a “set it and forget it” once per month bill as opposed to making individual payments for each.2
Is it difficult to switch home insurance providers paid through escrow?
In a mortgage escrow account, your mortgage lender earmarks a portion of your monthly mortgage payment, which it holds in your escrow to pay for items like homeowners insurance premiums and property taxes. The money accumulates in the escrow account each month until your annual homeowners premium is due. At this point, they cut a check from your escrow account to your insurance provider for coverage for the year ahead.
While paying your homeowners insurance through escrow is convenient, switching insurance providers can be tricky. You’re not stuck, however. You can and should switch if it’s in your best interest. Knowing the steps to change homeowners insurance will make the switch easier.4
Steps to change homeowners insurance providers
Let’s look at the steps required to switch your homeowners insurance provider to ensure you’re getting the best deal on the coverage you need.
1. Review your current policy
Before making the switch, you’ll need to review your current policy to make a proper comparison. Pay special attention to the essential details about your homeowners insurance coverage, such as annual premium, coverage, limits, and deductible amount. This information will help you compare insurance quotes by helping ensure your home is protected under the same terms. In addition, you should find out if your current policy charges an early cancellation fee. Even if there is one, which is relatively rare, you can still shop around and make the switch when it comes time to renew.5, 6
2. Determine your policy needs
Reviewing the details of your policy is also a good opportunity to look for any gaps in coverage, as you may realize you want more coverage, even if you’re searching for ways to save.2
3. Research different providers and get quotes
Now that you’ve got the details of your current policy, you’re ready to compare rates and see if it makes sense to switch by getting quotes from at least three providers. This is where an independent insurance agent can be beneficial. Working directly with an independent agent lets you learn about perks, additional coverage, and discounts each insurance carrier offers. And if you’ve significantly upgraded your home since starting your current policy, you may qualify for additional discounts. You will also be able to receive a more accurate estimate.5, 6
A provider like Nationwide offers numerous discounts on homeowners insurance, so be sure to check them out. They also provide a free quote, which is handy when shopping for new insurance.
4. Confirm the mortgage clause for your lender
The mortgage clause defines how your mortgage lender should be listed. And it includes your lender’s official name and their unique address for insurance documents (this is often a separate address). Call your mortgage company to ensure the proper mortgage clause, then relay that information to your new insurance provider. Do this BEFORE you buy your new insurance policy because purchasing the policy will automatically trigger sending documents to the mortgage on file, and the mortgage clause needs to be accurate from the beginning to avoid complications and confusion.4
5. Buy your new policy
Great job on finding and selecting a new insurance policy! You may be able to purchase your new policy right after getting your quote, but it’s crucial that you don’t cancel your current policy before you buy the new one to avoid having a lapse in coverage. Ensure the new policy start date is on or before the current policy’s cancellation. If you paid your current policy in full before it was completed, don’t fret because you’ll be cut a refund check for those unused premiums. But don’t be too quick to spend it; you might need it to put into the escrow account to pay for your new policy.5, 6
6. Cancel your existing policy
Once the new policy has been confirmed, and your mortgage lender has been notified, you can cancel the old one, knowing that you won’t have any lapse in coverage.
7. Contact your lender
It’s time to contact your lender to let them know about the change. You can also let them know before you make the switch, as they may be able to advise you on ensuring you have adequate coverage from your new provider and outline what to expect during the process of switching. If you tell them after, let them know the start date of your new policy so they can halt payments to the old insurer when the switch takes effect. Your new insurer will handle all other details, including sending your declarations page to your lender. Your previous insurer will also send them an official notice of the cancellation.5
8. Send your premium refunds to the new escrow account
If you switched insurance companies before the renewal period, you’ll get a refund from your policy prorated to what is left to pay on your annual premium. Contact your mortgage company to ask how to send this money back to your escrow account. Remember that while you could keep the refund, it’s likely that your new escrow will be short, which would mean making a higher monthly mortgage payment to replenish your escrow amount.4 If you follow these steps, switching insurance companies, even in an escrow account, is easier than you might have imagined. You owe it to yourself, your home, and your peace of mind to see that you’re getting the coverage you want at an affordable price.
Be sure to check out insurers like Nationwide, who offer many ways to save, particularly if you bundle your home insurance with another policy like auto insurance. You can get a free bundled quote from Nationwide or work with an independent agent to get a clear picture of all the available coverages and discounts available. Regardless, you can begin the process to see if a better value on homeowners insurance is available.