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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    Choosing your new apartment isn’t an impulse decision. The choice you make will have an impact for a long time. There are many different things to consider as you tour one possible home after another. On top of that, landlords and management companies work hard to make them all seem perfect.

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    How Much is Rent & the Security Deposit?

    Any apartment hunter should ask themself this crucial question: “How much should I spend on rent?” Setting a budget ahead of the search helps narrow the possibilities. You’ll save time by eliminating options that are too expensive.

    Still, relying on online listings alone may not be enough. It’s better to personally ask the landlord, whether by calling, emailing, or visiting. Make sure to also bring up the security deposit, as well as any other upfront costs they may ask of you. This will save you from unpleasant surprises before you sign anything.

    How Much are Utilities and What Do I Cover?

    Every apartment complex handles utilities differently. Water, electricity, air conditioning, heating, gas, and more may be split between landlord and tenant. Then there is the matter of which ones you’ll need to get yourself. Your apartment may come with cable and wi-fi, but you may be responsible for them on your own.

    Only your landlord will know for sure, and they should be clear about what’s expected of you. Before leasing an apartment, you should ask what utilities are available and which ones are covered. Record the answers, factor the costs into your budget, and look for the place that offers the most for the least.

    How Does Parking Work?

    Some apartment complexes have their own parking lots, with many spaces reserved for tenants and a few set aside for guests. Others may give residents access to a dedicated structure, providing greater security — but possibly at a higher cost. Others still may only offer street parking, which can be expensive to maintain.

    In short, parking may be a complex situation involving specific locations and extra costs. If you have a car, don’t just ask if parking is available. Get the details. As you weigh your options, consider what’s best for your car as well.

    What’s the Pet Policy & Is There a Deposit or Fee?

    The pet policy won’t matter to every apartment hunter. If you have a furry friend or might want one someday, make this one of their first questions to ask when touring an apartment. A “no” answer is no deal, no matter how great the other perks may be.

    Some landlords may allow pets if you pay a one-time deposit or additional monthly fees. Make sure to keep that in mind during your search.

    What Amenities are Included?

    Utilities cover the most vital parts of a home — the things that make living there comfortable. Amenities are the complex’s welcome bonuses — the things that make living there enjoyable. Common examples include clubhouses, swimming pools, public kitchens, communal laundry machines, and fitness rooms.

    Amenities are great for those who use them, but their presence can justify higher rent. As your landlord takes you through each selling point on your tour, ask them whether these perks are included with your price. Also, make sure to consider if you’ll even use them.

    Do I Need Renters Insurance?

    Home insurance is for houses. If you live in an apartment, you look for renters insurance instead. In fact, some places make it mandatory for all residents. Be sure to ask your landlord in advance so you can make any arrangements you need.

    This practice is all about liability. Landlords have their own insurance, but it’s based on their duties and would only cover their share of the damages. Renters insurance offers protection for your living space and your belongings. Even if it’s not required, getting your own policy could bring you peace of mind.

    Can You Describe the Application Process?

    Applying for an apartment can be complicated and time-consuming. You might have to pay fees, undergo background checks and other screenings, and more just to see if you qualify. This may be preferable to the alternative: apartment listings that promise no credit check may be scams.

    You could always learn about each step of the application process as you go. Still, it never hurts to know ahead of time, especially if there are any fees and risks. If anything is unclear, the landlord should explain it to you.

    What Should I Know About Rent Increases?

    A variety of factors can change the value of an apartment. Examples include market shifts, new installations, repairs and replacements of fixtures. Your rent will likely not change for the duration of your lease. Once the time comes to sign again, though, your monthly payments may very well go up.

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    What are the Lease Length Options?

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    Can I Make Changes to the Rental Unit?

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    How Do Maintenance Requests Work?

    Besides rent, tenants might only interact with their landlord through maintenance requests. After all, it’s the complex owner’s duty to keep everything in their apartments running smoothly. If your shower stops pumping heated water or your lock gets sticky, maintenance will get it fixed.

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    What’s the Guest Policy?

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    Don’t just assume that any landlord would be okay with your best friend crashing on your couch for a while. Get the details on the guest policy before moving in. They’ll tell you what permissions they’d grant and how you can get them granted.

    What’s the Neighborhood Like?

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    How Soon are You Looking to Fill the Unit?

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    Whether you’re a homeowner or a renter, everyone can benefit from a home inventory!

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