When you buy a home by securing a mortgage, your lender usually opens an escrow account to hold payments for fees associated with the property, such as property taxes and homeowners insurance. You make those payments to the account along with your monthly mortgage payment. When the insurance and property tax bills come due, they are disbursed from the escrow account. Even though your homeowners insurance premium will be paid directly from your escrow, can still opt to change your insurance provider.
Real Estate Settlement Procedures Act
The Real Estate Settlement Procedures Act, or RESPA, is a set of federal laws that protect consumers who are purchasing real estate. RESPA gives you the right to choose your own homeowners insurance provider. That said, your coverage will still need to comply with any requirements set by your lender, such as certain types of coverage or the minimum amount of coverage. If your insurance premium is paid from your escrow account, you’re still free to shop around for a better rate or bundled discounts on your homeowners insurance. You’ll just need to notify your lender when you decide on a new provider.
Notifying Your Lender
If you decide to change your homeowners insurance policy and that policy is paid from an escrow account, you’ll need to notify your lender. Call your lender and let her know you’ll be changing providers; give her the homeowners policy number and the name of your insurance agent. You may also need to have your loan number on hand when you call. Most likely, you’ll need to cancel your existing insurance policy yourself. You can do this by contacting the current company.
Your New Payment
When you change your homeowners insurance provider in escrow, your premium should still be paid from your escrow account. This may not be possible if the account doesn't have enough funds to cover the entire premium. Lenders usually pay insurance premiums once a year, so if your existing policy was paid recently, you may not have the accrued funds to cover your new policy. You can cover your policy out of pocket and “bill" your lender in the coming year. To do this, you'll need to contact your lender and furnish proof of the premium payment. Your lender will then cut you a check from the escrow account funds.
Receiving a Refund
You can change your homeowners insurance provider whenever you choose, even midpolicy. If you cancel your current policy before it expires and are due a refund, the insurance company will send a check directly to you. You can opt to put this money back in your escrow account, but you’re not required to. If you had to cover the new premium out of pocket, you may wish to keep the funds as a repayment; however, if your escrow account is covering the new premium, it might be a good idea to reimburse the account so you're sure it has sufficient funds when the new policy premium comes due.