Insurance policies are going to cost money, including your homeowners policy. However, the cost of your plan—your premium—is going to be a lot less than any claim you will likely ever have to make against it. Still, you of course want to pay a price that will offer you a good value for your chosen benefits. Plus, even once you determine your premium, you will have to pay for it, and this will require some planning on your part.
It is imperative that you make your home insurance premium payments on time, and in-full. However, payment timelines can differ from policy to policy. Sometimes, you will have to make your premium payment as a lump sum. In other cases, you can divide your premium into separate monthly installments. Whether you can make each choice might depend on requirements put in place by your mortgage lender. Still, your insurer is happy to work with you to keep your billing options as manageable as possible.
Let’s take a closer look at how these payment requirements might manifest themselves when you start the process of getting homeowners insurance. Your agent will be there to help you design the best payment structure for your needs.
Homeowners Insurance Requirements and their Effect on Premiums
Property is expensive, and your house is going to be one of the costliest investments you ever make, both in terms of monetary cost and overall value. Most people could not afford a home if they simply tried to save their own money for it. Instead, the majority of home buyers apply for a mortgage through their bank to finance the purchase.
The bank will provide the mortgage to help you complete the transaction of buying the home. However, you will have to pay back that financing to the bank. As a result, the bank still has a financial interest in your home, even though the home is yours. If you fail to pay back your mortgage, then the bank could potentially repossess your home. As a result, the bank will want to guarantee its own security in the property. One of the ways that they will do so is by requiring you to buy homeowners insurance.
If something happens to your home, then your ability to pay back your mortgage might become impacted. After all, if a fire were to break out, then you might face the budgetary strain brought by having to make repairs. This could strain all parts of your budget as a result, including causing a threat to your being able to pay your mortgage. Without the benefits provided by your homeowners insurance, you might be at risk of defaulting on your mortgage, which is something that your bank does not want to happen.
Additionally, your bank doesn’t want your home to be totally destroyed because of the threat it poses to your ability to remain in the home. For example, if a fire breaks out and totals the home, then you will have to be able to rebuild. Otherwise, you might be forced to moves, which could create the added strain of having to pay a mortgage on a home that no longer exists. Your homeowners insurance can make sure you have the benefit of being able to rebuild, instead of forcing you to continue to pay a mortgage on a nonexistent property.
Do Lenders Have Payment Requirements for Homeowners Policies?
Sometimes, a mortgage lender will go further than just requiring you to buy homeowners insurance. They might additionally require you to pay for your plan in a certain way. They do not want their mortgage holders to miss payments on either their mortgage or insurance policies, which is why they will often introduce these further rules.
- Some lenders require you to pay your full first year’s premium at the time you close on the home. By doing so, you will have the guarantee that you will have continuous coverage throughout your first year of living in the home.
- If you have the option, you might be able to pay for your plan in monthly, quarterly or semi-annual installments. When you pay in installments, you will receive a quote for your full premium at the time you enroll in your policy. However, you will be able to pay this premium off on a schedule that works for you. Installment payments are of course smaller than paying the full premium in a lump sum. However, you do have to remember to make these payments, as missing a payment could cause your policy to lapse.
- Depending on the structure of your mortgage, you might have to pay your premium (and often, your property taxes, too) through an escrow account. Under an escrow account, you pay your mortage payment each month, and part of that payment goes into the escrow account. The money in this account will then pay your home insurance premium the next time it is due.
All in all, lenders require these strict payment rules because they want to ensure you never go without the homeowners insurance that you critically need. However, they are happy to work with you and your insurer to determine precisely how to structure your payment options to your satisfaction.