How is homeowners insurance paid? Homeowners insurance providers can help make payments after theft, a fire, or other disasters. Without the help of this policy, the house owner will have to make payments for the repair bills if the home is damaged. Thus, knowing how to pay your insurance premium after purchasing it is very important. Because if you do not pay, the homeowner’s insurance policy won’t be effective if you want to cover the bills for your damaged home.
Certainly, if you are a house owner, you might already know that there are certain ways you can pay for your insurance premium. However, if this is the first time you are purchasing a house, you probably have different questions about how your homeowners insurance can be paid. So, let’s unravel what you need to learn about making payments for your home insurance policy.
How is Homeowners Insurance Paid?
Just as said above, there are certain ways you can pay for your premiums. You can either make payments with an escrow account set up by your mortgage lender or by just sending your payments straight to the insurer.
With the escrow account option, your lender collects a monthly mortgage and puts a part of it into your escrow account. The insurance bill is paid annually on your behalf when it is due by the loan servicer.
However, if you choose to make payments directly to your insurer, you can either choose to pay monthly, annually, semiannually, or quarterly. But you might have to send evidence of homeowner’s insurance to your home loan lender every year.
How To Pay for Homeowner Insurance with an Escrow Account
Just so you know, an escrow account is a specific type of savings account that is handled by a neutral third party. This account may be set up by your mortgage during the home-buying process. Most lenders prefer to make use of escrow accounts. That’s because it is a simple way to protect the lender’s investment. Also, make sure the loan borrowers make payments for their homeowner’s insurance and property taxes.
Every month, your home loan payment may combine interest, property, principal, and homeowners insurance. This includes other separate policies like private mortgage insurance and flood insurance. Your mortgage lender takes the home insurance, tax, and PMI portions and puts them into your escrow account. When the premium is due, the mortgage lender will withdraw the money from your escrow account. The loan servicer will now pay the premium on your behalf.
Benefits of Paying with an Escrow Account
An Escrow account is a financial tool that home buyers and mortgage lenders utilize. And this account provides every buyer with amazing benefits like:
- Escrow accounts pay for your homeowner’s insurance bill automatically. This helps you make payments on time and makes sure that you have coverage for your home.
- It is very easy to use because you don’t have to keep tabs on due dates and multiple payments.
- It helps you plan for any payment changes.
With an escrow account, you don’t need to worry about your premiums fluctuating. Your loan servicer will help cover the difference for a short period if the account shorts one month. However, the company may have to increase your mortgage payment monthly to ensure you have enough in the account for the next payment date.
Disadvantages of an Escrow Account
Paying for your homeowner’s insurance with an escrow account also comes with its setbacks. Such as;
- It may be very difficult to get rid of an escrow account once it is established.
- You will have higher monthly payments because you are combining the mortgage interest and principal with taxes and insurance.
- There will be estimated inaccuracies.
Just as the escrow account has its benefits; it also has its setbacks, which you will have to look at.
Homeowners Insurance Premium Paid directly to the insurer
If you don’t want to make use of an escrow account, you can choose to make payments to the insurance provider directly. You can either make payment over the phone, online, or by check. Just make sure you set up the payment schedule based on your choices and preferences. Insurance companies make it very easy for customers to get access to them via phone or online.
Benefits of Paying Directly to the Insurance Provider
Just like the escrow accounts, paying your insurer directly also comes with its benefits.
- Paying your home loan separately enables you to spread out your bills. It helps to reduce your monthly payments.
- Insurers allow you to choose the payment method, such as check, debit card, withdrawal, or credit card.
- It is very easy to remove or add homeowners insurance coverage. You can cancel your policy by just calling your insurer on the phone.
Unlike the escrow account, there may be more steps you need to take to close the account. However, you will enjoy these benefits if you pay for your premium directly to your insurer and even more.
Disadvantages of Paying Directly
There are also some setbacks to paying directly that you need to be aware of.
- The amount you make for payment of your insurance premium can vary every year.
- Unlike with the escrow account, you will have to pay premiums and tax bills on time. If you miss a payment date, you may have to pay a late payment fee.
- You will miss out on discounts provided by the insurer.
It is essential to have insurance coverage for your home. And make the payment for the premium on time to keep your policy standing.
Conclusion
You can either choose to pay for your premium using an escrow account or pay directly. Take a look at the setbacks and benefits, and choose the best option of your choice. You can also do research directly with your insurer to determine the best payment method.