Is Home Insurance Included In The Mortgage?

Home insurance and mortgages are separate, so when you take on a mortgage, you’ll have to acquire home insurance on your own through another source. However, while they aren’t bundled into the same product, they can be bundled into the same payment. Your mortgage lender may even require you to make payments for home insurance and your mortgage within the same payment to begin with.

Why Do Home Insurance And Mortgages Have To Be Bought Separately?

Home insurance is a product from insurance companies. Mortgages come from lenders. Home insurance and mortgages also function differently on a fundamental level. If your home is damaged in an event your policy covers (a named peril), such as fires, storms, and explosions, your insurance company’s role is to assess filed claims and process payouts. A mortgage is simply a debt you owe.

Why Do Mortgage Lenders Often Require Home Insurance?

While your home insurance may not be included in your mortgage, your mortgage lender will likely require you to obtain it. Your home can be considered a mutual investment for you and your lender. Your lender has a vested financial interest in the home, and any damages to the home without home insurance can be a significant financial blow.

How Can Home Insurance And Mortgages Be Included In The Same Payment?

Consider using an escrow account if you prefer to cover multiple expenses such as your mortgage, home insurance, private mortgage insurance (PMI), and property taxes through one source. With an escrow account, you deposit money, but that money doesn’t go directly toward the parties you owe for various expenses. Instead, an agent handles your deposits and ensures your funds are correctly distributed.

Escrow accounts may be mandatory in certain situations. For instance, your mortgage lender may require you to pay through an escrow account if your down payment is 20% or lower.

What Are The Benefits Of An Escrow Account?

While your home insurance isn’t included in your mortgage, the way in which you cover costs through an escrow account makes it as if it were.

The main benefits of using an escrow account to cover home insurance, mortgage, and other related costs include:

  • No risk of being late on a payment. Since everything is rolled into one expense, you don’t have to keep up with multiple billing cycles at once
  • Possible discounted rates. Some companies will provide incentive to use an escrow account by slightly reducing premiums
  • The peace of mind of having an agent handle distribution instead of dealing with companies directly

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