Can Homeowners Insurance Be Paid On A Monthly Basis?

Whether you pay your homeowner's insurance provider directly or through an escrow account with your mortgage lender determines the frequency of your payments. Even if you have the option to pick how frequently you pay your insurance premium, a monthly payment may not always be the best option. Here is information regarding the cost of homeowner's insurance.

How Property Insurance Is Paid for

When obtaining a mortgage, a majority of lenders require homeowners insurance. Thus, you and the lender are protected if a fire, hailstorm, or tornado damages or destroys your property. Keeping your homeowner's insurance after you've paid off your mortgage safeguards you from a financial disaster if something happens to your home.

When you obtain a mortgage, your lender may ask you to establish an escrow account to ensure that all homeownership-related expenses, such as insurance are paid. With an escrow account, you will make a single monthly payment to your lender, including your loan payment and insurance, property taxes, and other expenditures. Then, your lender will pay your annual insurance premiums from the escrow account.

If you own your property outright or prefer not to have an escrow account (optional), you may have greater flexibility in determining how frequently you pay your homeowner's insurance premiums.

When You Have a Trust Account

Numerous lenders require an escrow account, particularly if you have less than 20 percent equity in your property or a government-backed mortgage (like an FHA loan). You may also choose to set up an escrow account with your loan servicer, even if it is not required. If you find it easier to manage monthly payments than annual or semiannual payments for insurance or taxes, an escrow account can help.

With an escrow account, your annual mortgage premium is divided into 12 smaller installments, which are added to your monthly loan payment by your lender. When due, your lender uses this account to pay your homeowner's insurance premium, property taxes, and other specialized insurance premiums. Even though you pay your insurance premium monthly, your lender makes the annual payment to the insurance company.

If You Do Not Have a Trust Account

If you do not request an escrow account and are not obliged to have one as part of your mortgage, you will pay your homeowners insurance premiums straight to the insurance company.

The frequency of payments is determined by your insurance provider's rules and, potentially, your preferences. If authorized, you may choose to pay your bill annually, semi-annually, quarterly, or monthly. Check your homeowner's insurance policy and the terms and conditions of your insurance company to determine the best alternative for you.

Should You Pay Monthly or Annually for Homeowners Insurance?

If you own your home free and clear or do not have an escrow account with your lender, you will pay your homeowner's insurance rates straight to the insurance company. You may be permitted to pay your monthly premiums, but you could save money by paying annually instead.

Many insurance companies give a discount for paying annual premiums and may impose an installment or convenience fee for monthly payments. Typically, an installment charge covers the expense of processing additional monthly or quarterly payments. A little fee may not seem like much at first, but it can accumulate over time.

Consider breaking your annual premium into 12 "payments" deposited into a separate sinking fund if you find it difficult to make a single hefty payment each year. This allows you to budget over the entire year for a one-time expense.

However, note that you will likely need to pay your first independent annual homeowners insurance payment in advance, so be prepared for this expense if you plan to cancel your escrow account or pay off your mortgage.