Is Homeowners Insurance Included In Escrow?

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David Osgood
Agent, Rural Mutual Insurance Co., Union Grove, WI
That is going to depend on you and the agreement that you have with your lender. Some lenders will require that your property taxes and homeowners insurance premiums be escrowed. If you are 80% or less loan to value for your home your lender may offer you the opportunity to have your property taxes and homeowners insurance premium escrowed or allow you to pay them yourself.
Answered on July 3, 2013
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Darald Novak AAI
Retired Agent and Broker, Self Employed, Albany NY USA
Most often the lender requires 'hazard insurance' premiums be included in the escrow account. The borrower may request the insurance be added to an existing escrow account or one set up for the insurance premium but the untimate decision is up to the lender. Normally when establing escrow, the borrower pays the first year premium at closing and the escrow provider includes an additional monthly amount in the mortgage payments for the next 11 or 12 months so there is enough in the escrow account available to pay the renewal premium. What is critical here is for the borrower to keep their insurance carrier informed of any change in the lender's or escrow servicing entity's name, address, or account reference number. The borrower should also let the lender know of any changes to the insurance contract which raise or lower the premium. This would include an upcoming renewal premium that may be significantly higher (for various reasons) than the expiring premium. Many lenders want policies and documents to go to one address and bills to another (possibly the escrow servicing entity.) All borrowers must be cognizant of these items and proactive in notifying all interested parties. The last thing a borrower want is for their 'homeowners policy' to be cancelled for non-payment because the escrow entity didn't receive the renewal bill so they could pay the renewal premium. Whenever you receive anything from an insurance company you have a policy with, make sure you understand what it is and take action immediately. In the event the policy is cancelled (for any reason or event) the lender will no doubt secure 'force placed' hazard insurance to protect their interest (and not that of the borrower.) A forced placed policy will definitely be a lot more expensive premium-wise and a lot more restrictive coverage-wise. Not a good situation to be in and usually totally avoidable. So if a borrower enters this type of situation, they had better 'stay on top of it' or suffer the consequences.
Answered on August 15, 2014
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