When purchasing a home with a mortgage, many homeowners opt for or are required to have escrowed home insurance. This arrangement ensures that property taxes and homeowners insurance are paid on time by incorporating these costs into the monthly mortgage payment.

How Does Escrowed Home Insurance Work?

When a mortgage lender requires an escrow account, a portion of your monthly mortgage payment is allocated to cover homeowners insurance and property taxes. Instead of paying these expenses separately, they are collected in advance and held in an escrow account managed by the lender. When the insurance premium or tax bill is due, the lender pays these amounts on behalf of the homeowner.

Each month, the lender calculates an escrow payment based on projected costs. An annual escrow analysis ensures that enough funds are in the account, adjusting payments if necessary to cover rising insurance premiums or property taxes.

What Are the Benefits of Escrowed Home Insurance?

Homeowners appreciate the following benefits of escrowed home insurance:

• Ensures on-time payments—Escrow eliminates the risk of missing an insurance payment, which could lead to policy cancellation and potential coverage gaps.
• Simplifies budgeting—By spreading insurance costs over 12 months, homeowners can avoid large lump-sum payments.
• Protects the lender and homeowner—Lenders require escrowed insurance to safeguard their investment, ensuring continuous coverage against risks like fire, wind damage or theft.

What If Insurance Costs Change?

If your insurance premium increases, your lender will adjust the escrow amount accordingly. This could lead to higher monthly payments or a request for a lump-sum deposit to cover the difference. Conversely, if premiums decrease, the lender may issue a refund or reduce future escrow payments.

Understanding how escrowed home insurance works helps homeowners manage costs efficiently and ensures continuous coverage, providing peace of mind and financial stability. Contact BIA & Company today to find out more.

This blog is intended for informational and educational use only. It is not exhaustive and should not be construed as legal advice. Please contact your insurance professional for further information.