Homeowners insurance offers a wide range of protections that can ultimately save you a lot of money if something unexpected happens, like damage from a storm. For this reason, you’ll want to keep up with your payments to make sure you’re covered for those moments you can’t always prepare for as a homeowner. The two main options are escrow account payments and direct payments you make yourself.
Because a home is a major investment, most people cannot afford to make this kind of purchase at once. This is why it’s common to have a mortgage associated with your home through a bank or similar lender. To protect their interests and contribution to your investment, lenders typically require mortgage holders to have homeowners insurance. To make sure this is actually the case and payments are consistently made, they often use escrow accounts.
How Escrow Payments Work
Typically, the escrow account is set up by your bank or lender when you sign your mortgage documents. They continue to manage the account for the duration of your mortgage. Some lenders may have different ways to handle escrow accounts, but you should be given this information as you make your mortgage arrangements. Essentially, what happens is you make a lump sum payment each month to the escrow account. Your lender then makes the required premium payments to your insurance company.
The information necessary to determine how much you’ll need to pay into the escrow account each month is typically determined by your state’s tax authority. Your insurance company and lender also play roles in determining payment amounts. This is done to ensure the proper premium amount is being paid. In some instances, you may receive a refund from your lender at the end of the year if you paid too much into the escrow account.
The Real Estate Settlement Procedures Act requires mortgage lenders to make escrow account payments to insurance providers on time. Therefore, if disbursements to your insurance provider aren’t made on time, you may be able to file a lawsuit. However, be aware that mistakes sometimes happen, so if it’s a one-time oversight or technical error, your lender may be able to smooth things over with your provider.
Premium Payment Adjustments
Over time, home insurance payments may go down. For instance, this can happen if you make certain updates to your home. If this happens, let your lender know. This doesn’t necessarily mean your escrow account payments will decrease. For example, your home’s property taxes may increase if your home’s value goes up, which may then offset any payment discounts.
If you don’t have an escrow account, you can make your homeowners insurance payments directly to your insurance provider. This is usually done based on the options available from your provider. For instance, some direct payments are made every month. However, other insurance providers give policyholders the option to make direct payments quarterly, semiannually, or yearly.
If you need additional information on any aspect of home insurance, reach out to the insurance experts at Altra Insurance Services. For reliable, affordable homeowners insurance, San Diego residents know they can trust Altra Insurance Services. We also provide renters, commercial, motorcycle, and auto insurance. Request a free quote by calling one of our friendly agents today at (800) 719-9972.