A homeowner’s insurance policy, also known as hazard insurance, protects your investment (and your mortgage lender’s investment) should specific problems arise. Typically, you must select an insurance provider and policy when purchasing or refinancing your home. Still, you can choose to change insurance during the escrow process if you want to before you close. You might also decide to change insurance carriers after closing, or at some point during your policy term.
You should notify your lender of this change if your mortgage comes with an escrow impound account that includes the collection and payment of homeowner’s insurance. If you decide to change insurance policies during the escrow process, be sure to leave your escrow agent sufficient time to provide your lender with evidence of insurance before the closing date.
A homeowner’s insurance policy protects your home against the cost associated with damage from certain hazards and catastrophes, such as fire and lightning, snow, ice, hail, windstorms, falling trees, as well as vandalism or theft. Depending on where you live, your personal preferences, and your lender’s requirements, you might also need additional coverage for natural disasters like flooding, wildfires, and earthquakes. For example, you might be required to buy flood insurance if you live in a flood zone, or earthquake insurance if you live in a seismically active part of the country like San Francisco.
While your mortgage lender may advise you of the minimum amount of coverage you need to close on your home purchase or refinance, you are free to shop for the best provider, policy terms, and rates before closing. You may even change your mind about any aspect of your homeowner’s policy up until closing. However, you’ll need to provide the escrow agent who is handling your closing sufficient time to order new evidence of insurance and provide your mortgage lender with the details of your new policy. This can take several days or even as long as a week. Make changes to insurance before you sign your final mortgage loan documents. Otherwise, your lender will have draft new loan documents reflecting the changes. Redrawing loan documents can delay your closing by several days and cause additional fees.
If you have opted for an escrow impound account for the payment of property taxes and insurance, or your lender required the account as a condition of closing, you can still choose a new homeowner’s insurance provider or change specific policy terms after you’ve closed. The escrow impound account benefits your lender by ensuring that you pay one-twelfth of your homeowner’s insurance premium each month along with your monthly mortgage payment. The lender then sends the annual premium payment to your insurer carrier on time to prevent a lapse in your coverage.
You must immediately provide your lender with the new insurance policy details if you change insurance while you have an escrow impound account. Your insurance provider can help with this if you authorize them by providing the insurance agent with your mortgage company information, account number, and signed authorization. The lender will review the policy to ensure it meets minimum coverage requirements.
If you have questions about homeowner’s insurance requirements, contact your insurance company or Primary Residential Mortgage. We are always happy to answer your questions.