Margaret Huntley Last Updated On: September 8, 2023

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Escrow Home Insurance

Escrow home insurance: What is it? If you’re among the millions of Americans who aren’t sure what “escrow home insurance” is, fear not; this article is for you! 

Escrow is a pretty elusive word; it doesn’t give much away. Not the same way “homeowners insurance” does.

Like any industry, insurance has its own jargon and fancy terminology that you’ll need to plug into an online dictionary—who has time for that—to figure out its meaning. So, if you’ve ever wondered what homeowners insurance escrow is, read on to find out.  

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How Does Escrow Home Insurance work?

First, let’s define escrow home insurance. Escrow home insurance is an account typically set up by your mortgage lender—however, not all lenders mandate this—to hold enough money to cover your monthly home-related bills. Some lenders allow you to opt out of an escrow account after a certain amount of time has passed and only if you qualify.

An escrow account is a bank account with funds earmarked for your home, such as home insurance premiums, mortgage payments, and property taxes. Having money in escrow means your bills get paid on time, every time.

How do funds end up in your escrow account? Simple, money enters escrow whenever you pay your mortgage. When you make a monthly mortgage payment, a portion goes into your escrow account. When a bill like homeowners insurance comes up, your provider pays the bill using your escrow account funds on your behalf. However, your lender doesn’t just take x-number of dollars out without your knowledge; your mortgage payment outlines how much goes toward the mortgage and how much goes into escrow. For instance, if your mortgage amount is $1,500 for the month, $1,000 may go to the mortgage while $500 goes into escrow.

Is Escrow Home Insurance Mandatory?

A common instance when a homeowner must have an escrow home insurance account is if your house down payment is under 20% of the final home sale price. This doesn’t mean you’re stuck with an escrow account permanently; if 24 months pass and you’re in good standing, i.e., you aren’t delinquent with your payments, you can opt-out using a cancellation or escrow waiver through your provider.

How Escrow Pays for Home Insurance

When you purchase your home, an escrow account is set up if it’s a lender requirement. However, you are responsible for verifying if the lender sets it up on your behalf. You can also set it up yourself if your provider permits it. But let’s say your lender does the leg work for you; you should do your due diligence and oversee the escrow account setup. 

Once your escrow account is activated, the allotted escrow funds will be transferred into your account when you make your mortgage payments.

As part of the mortgage lending agreement, you’ll need homeowners insurance. Home insurance premiums are quoted annually and divided up into 12 monthly payments. Thus, your home’s closing costs will be more expensive as they include your first year of home insurance. 

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Can Your Escrow Payments Decrease?

If your home insurance rates go down, your escrow payments will also decrease unless your property taxes are due to increase the next year. Everything is about maintaining a balance. Thus, if your home insurance goes down and property taxes go up, your escrow payments will remain the same.

However, something to keep in mind is your lender conducts annual escrow reviews to assess whether your home insurance or property tax rates have changed; if so, any changes will factor into the upcoming year. Once the annual assessment is complete, your lender will give you an escrow review statement indicating any changes to your house bills or escrow account. 

Can You Change Home Insurance with an Escrow Account?

When someone else handles your money, it’s natural to wonder whether you can change insurers while you have an active escrow account. The answer is you can change providers at any time. You’re not stuck with the first home insurance policy you took out.

But is it worthwhile switching? Yes and no. Here are some factors you should consider before making the switch to another insurer.

  • Your home insurance rates are already paid for the year, so if you cancel, you’ll get a refund check for the remaining months you’ve paid for.
  • Some insurance companies may allow you to port your escrow account to the new insurer.
  • Beware, quite a bit of work is involved in switching to a new insurer!

How to Switch Insurance Providers with an Escrow Account

If you’ve decided you’re definitely switching insurance companies with an escrow account, that’s the easy part. The hard part is getting it done! 

Here’s the step-by-step process on how to switch insurance companies with an escrow account:

  • Ready Your Documents: Have all the information about your home, like the heating type, square footage and whatnot, as well as a copy of your current home insurance declarations page at the ready. This will help fast-track the application process.
  • Shop Around: Never settle for the first home insurance quote you get. You want a handful of quotes that compare apples to apples so it’s easier to spot the best policy for you. If you’re looking for a no-hassle quote, grab a free quote here!
  • Contact Your Mortgage Lender: Once you’ve locked onto a new insurance provider, it’s time to get ahold of your mortgage lender so they can redirect escrow funds to the right home insurance company. Some home insurance providers may even call the new lender for you—talk about service! 
  • Start the New Policy, Cancel the Current Policy: Once you’ve finished signing all the paperwork with the new provider, contact your current provider to set a cancellation date. Select your new policy start date on the same day as your cancellation date to prevent a lapse in your coverage and protect your property.

    Your current provider will be in touch with your mortgage company and you with a policy cancellation notice. You will be reimbursed via a refund check if you have any paid premiums. At the same time, you can also expect that your new provider will send proof of coverage via a declaration page after your first premium payment.
  • Your Mortgage Company will do everything else: After you’ve informed the lenders and home insurance companies of the switch in providers, your lender will direct escrow payments to the new insurance company. Be advised that your escrow account during the initial transition may fluctuate; if you’re concerned, keep an eye on it and contact the necessary parties with any questions.

Does Switching Insurers Cost You?

The good news is no. Switching to a new insurance provider does not cost you any extra cancellation or administration fees. 

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The Benefits and Shortcomings of Escrow Accounts

If you can choose whether to take out or cancel an escrow account, it’s worth considering its pros and cons to help you determine whether it’s right for you. 


  • You never have to worry about having money to pay your homeowners insurance as it’s already set aside in an escrow account, so long as you’re up to date on your payments. 
  • Paying your home-related bills is done by a company, not you, which means one less thing to remember—and less stress!
  • Certain states allow you to earn interest on your escrow account, depending on which state you call home.
  • Your home insurance payment is automatically withdrawn from your escrow account; this will reduce your stress because you know your bills are covered.
  • If you can pay more than 20% down on your home, you can opt out of an escrow account.
  • You can change your homeowner’s insurance without financial penalties, like paying cancellation fees, even with an escrow account.


  • Your closing cost on your new home is more expensive upfront as money must go towards creating an escrow account.
  • You miss out on short-term financial investment gains through your bank.
  • Higher monthly mortgage payments. 
  • If you cannot afford 20% on your new home, you have no choice but to have an escrow account.

Should You Have Home Insurance When Your Mortgage-Free?

Should you forgo home insurance if you’ve just paid your last mortgage payment and now officially own your home? After all, lender’s requirements mandate you have home insurance; now that you’ve paid that off, you can choose whether you want home insurance. 

What to do?

Easy, celebrate the victory that you owe nothing on your home, and then keep your home insurance policy. Why? If you’ve paid off your car, would you ever dream of not having car insurance—aside from it being illegal—no because why take the chance that an uninsured motorist hits you and cannot afford to cover the damages? It’s the same logic with your house. Just because you own your home doesn’t mean Mother Nature will stop hurling hail at your roof or blowing trees onto your garage. If you cancel your home insurance and your house sustains damage like what’s mentioned above, then these perils (hail and wind) covered by insurance are now something you get to pay for out of pocket.

So, let’s revisit the question: should you keep paying for home insurance once you’ve paid off your home? If you don’t want to get stuck paying out of pocket for avoidable damages, celebrate that you own your house and keep your home insurance policy. Keeping your homeowner’s insurance is the only way to safeguard your finances. Insurance is a small fee in exchange for having to fork out your hard-earned money to pay for unforeseen damage to your property.

Final Thoughts on Homeowners Insurance + Escrow Accounts

The key takeaway is that escrow accounts are a beneficial tool for homeowners. Despite escrow accounts costing more upfront, it means less hassle, headache, and stress for homeowners who may otherwise scramble to remember or come up with funds to pay their next home-related bill. And since you don’t have to remember when to pay your home insurance bill, you have more time to tend to the things that matter most to you, like your family.

If you’re looking into your home insurance options and have an escrow account, grab a free no-risk quote with Consumer Coverage and explore your options!

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Margaret Huntley Margaret Huntley is a creative writing and philosophy student at Western University. She has been working as a freelance writer for over two years and has written about everything from insurance, to poker, to health and wellness for international businesses.

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