Checking insurance assumptions before accepting a loan payment
Learn how to assess homeowners' insurance costs in your mortgage and ensure your premiums are accurately represented before finalizing your loan.
The short answer
Homeowners' insurance premiums are set by your insurer, not your lender, and are often included in your monthly escrow payment. You must ensure the insurance estimate in your Loan Estimate is realistic, as premiums directly impact your total monthly payment and your ability to maintain required coverage throughout the loan term.
The Role of Escrow Accounts
If your loan requires an escrow account, your lender will collect one-twelfth of your annual insurance premium each month.
If your insurance premium increases significantly, your monthly mortgage payment will rise accordingly to maintain the escrow balance.
Planning Example: Ask your professional: 'How will my monthly payment adjust if my actual insurance premium is higher than the lender's initial estimate?'
Verifying Coverage Requirements
Lenders require specific coverage levels to protect their financial interest in the property. You must ensure your chosen policy meets these requirements.
If your policy does not meet the lender's minimums, you may be forced to switch providers or pay higher premiums for the necessary coverage.
Planning Example: Ask your professional: 'What are the specific insurance coverage minimums required by my lender for this loan type?'
Direct Payment Obligations
If your insurance is not escrowed, you must handle payments yourself. Failing to pay these on time can lead to a lapse in coverage, which is a violation of your loan agreement.
If you are not using an escrow account, ensure you have a plan to pay these premiums in full when they are due.
Worksheet Example: Create a calendar reminder for your annual insurance renewal date to ensure payments are submitted before the deadline.
Checklist
- Confirm if insurance premiums are included in your monthly escrow payment.
- Compare lender insurance estimates with at least three actual quotes.
- Verify that your insurance policy meets all lender-required minimums.
- Check if you are responsible for paying insurance premiums directly.
- Review your budget to account for potential annual insurance premium increases.
Common questions
Does the lender choose my insurance provider?
No, you shop for and choose your own insurance company, though the policy must meet the lender's coverage requirements.
Why did my monthly payment change after the first year?
If your property taxes or homeowners' insurance premiums increased, your escrow payments will likely be adjusted, resulting in a higher total monthly payment.
Sources
- CFPB — Buying a houseChecked October 12, 2026
- CFPB — Loan Estimate explainerChecked October 12, 2026
This guide is general educational content from SQFT IO, prepared with AI assistance. It is not legal, tax or loan advice. Talk with a licensed attorney, tax professional or lender about your situation. SQFT IO Illinois license 478.027617.