Home insurance is not automatically included in your mortgage payment, but your lender may require you to pay it through escrow
Your mortgage payment covers the loan principal and interest. Home insurance is separate. However, if your lender requires it—which most do—you pay the insurance premium to your lender as part of your monthly payment. The lender then holds that money in an escrow account and pays the insurance company directly when the bill comes due. This is not the same as insurance being included; it means you are paying for it through your mortgage servicer rather than to the insurance company yourself.
Whether you must pay insurance through escrow depends on your down payment and loan type. If you put down less than 20 percent, your lender almost certainly requires it. If you put down 20 percent or more, you may have the option to pay the insurance company directly instead of through escrow, though many borrowers choose escrow for convenience.
Key Takeaways
- Home insurance premiums are paid through your mortgage payment only if your lender requires escrow, which is common when your down payment is under 20 percent.
- Your lender holds insurance payments in an escrow account and pays the insurance company on your behalf, so you do not send the premium directly to the insurer.
- The amount in your escrow account can change each year if insurance rates rise or if your home's assessed value changes, which may increase your monthly payment.
- If you pay down your mortgage to 20 percent equity or more, you can request to remove escrow and pay the insurance company directly, though your lender may still require it.
How escrow works for home insurance
When your lender requires escrow, your monthly mortgage payment is divided into four parts: principal, interest, property taxes, and insurance. The insurance portion goes into a separate account held by your lender or a third-party escrow company. That account accumulates money throughout the year until the insurance premium is due, at which point the servicer pays the insurance company directly.
You never see the insurance company bill or write a check to them. The lender handles the entire transaction. This protects the lender's interest in the property—if the house burns down and you have no insurance, the lender's collateral is gone. Requiring escrow ensures the insurance stays active.
Your escrow statement arrives once a year, usually in the spring. It shows how much you paid into escrow over the past year, how much the servicer paid out to the insurance company and tax assessor, and what balance remains. If there is a surplus, the servicer may refund it to you or credit it toward next year's payments. If there is a shortage, your monthly payment will increase to make up the difference.
When your monthly payment increases because of insurance
Your escrow payment is not fixed. If your insurance premium rises, your lender recalculates your escrow amount and raises your monthly payment. The same happens if your property tax assessment increases or if your home's value changes for tax purposes.
Insurance rates can increase for several reasons: you filed a claim, your area experienced more weather events, your insurer raised rates across the board, or you added coverage. When the new premium takes effect, the servicer adjusts your escrow calculation and notifies you of the new monthly payment amount. This adjustment is separate from any interest rate change on your loan itself.
You can request an escrow analysis at any time if you believe the calculation is wrong. Contact your mortgage servicer and ask them to review the account. They must respond within 45 days. If they find an error, they will correct it and adjust your payment going forward.
Removing escrow if you have enough equity
Once you have paid your mortgage down to 20 percent of the home's original value—or once your equity reaches 20 percent through appreciation—you can ask your lender to remove the escrow requirement. This means you would pay the insurance company directly instead of through your mortgage payment.
To request removal, contact your mortgage servicer in writing. They will verify your equity position using your loan balance and the home's current value. Some lenders use an appraisal; others use the assessed value from your tax records. The process takes two to four weeks.
Even if you are allowed to remove escrow, you are not required to. Many borrowers keep it because it simplifies budgeting—one payment covers everything—and it ensures the insurance never lapses because the lender is paying it. If you do remove escrow, you become responsible for paying the insurance company on time. If you miss a payment and the policy cancels, your lender can force you back into escrow.
What happens if your insurance cancels
If your insurance lapses—because you did not pay a premium or because the insurer cancelled your policy—your lender will know within days. Insurance companies report cancellations to lenders automatically. When the lender learns the policy is gone, it will purchase force-placed insurance on your behalf and charge you for it.
Force-placed insurance is expensive, often two to three times the cost of a standard homeowners policy, and it covers only the lender's interest in the property, not your belongings or liability. The premium is added to your mortgage payment. You remain responsible for paying it until you restore your own insurance and provide proof to the lender.
If you pay through escrow, this risk is lower because the lender is paying the premium. If you pay the insurance company directly, make sure the payment reaches them before the due date. Set a calendar reminder or ask your insurer to send you a notice before the policy expires.
The difference between escrow and homeowners insurance
Escrow is an account; homeowners insurance is a policy. Escrow is the mechanism your lender uses to collect money for insurance, taxes, and sometimes mortgage insurance. Homeowners insurance is the actual coverage that protects your home and belongings against fire, theft, weather, and liability claims.
You choose the homeowners insurance company and the coverage limits. Your lender does not choose it for you—they only require that you carry it. You can switch insurance companies at any time. When you do, notify your lender so they can update the escrow account and adjust your monthly payment if the new premium is different.
Frequently Asked Questions
Can I pay my home insurance separately instead of through escrow?
Yes, if your lender allows it. Most lenders require escrow only if your down payment was under 20 percent or if your equity is below 20 percent. Once you reach 20 percent equity, you can request to pay the insurance company directly. Your lender must respond to the request within 45 days.
What if my escrow payment is too high?
Request an escrow analysis from your servicer. They must review it within 45 days and correct any errors. If the amount is correct but you disagree with the estimate, you can ask to pay a lower amount, though the servicer can refuse if they believe it will create a shortage. Some lenders allow you to make a lump-sum payment to reduce the monthly escrow amount.
Does my mortgage payment include property taxes?
Usually yes, if your lender requires escrow. Property taxes are held in the same escrow account as insurance. The servicer pays both the insurance company and the tax assessor from that account. If you remove escrow, you become responsible for paying property taxes directly to your county or municipality.
What is mortgage insurance, and is it the same as homeowners insurance?
No. Mortgage insurance (PMI or FHA mortgage insurance) protects the lender if you default on the loan. Homeowners insurance protects your home and belongings. Both may be included in your escrow payment if your down payment was under 20 percent, but they are separate policies covering different risks.
If I refinance, do I have to set up escrow again?
Not necessarily. When you refinance, your new lender will review your down payment and equity position. If you have 20 percent equity or more, the new lender may not require escrow. If you have less, they will likely require it. You can ask the lender about their escrow policy before you lock in the rate.