Why You Need To Shop for Home Insurance During Escrow

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Your lender will likely require you to purchase homeowners insurance before you close on your new home and your earnest money is released from your homebuyers escrow account. Even if you aren't taking out a loan, it may be worth buying homeowners insurance to protect yourself from financial loss in case your home is severely damaged or destroyed shortly after you become the owner.

Keep reading to learn more about getting home insurance before closing including when to start shopping and how you can find the right home insurance policy.

Key Takeaways

  • Homeowners insurance isn’t required by law but most lenders will require you to show proof of insurance at least three days before closing on your home.
  • You should begin requesting quotes from homeowners insurance providers as soon as you sign a contract to buy a new home.
  • Your mortgage lender will likely pay your home insurance premiums on your behalf using the money you pay into an escrow account unless you make a down payment worth more than 20% of your new home’s value.
  • If you don’t buy homeowners insurance yourself, your lender may buy an expensive force-placed policy on your behalf and pass the cost off to you in the form of higher mortgage payments.

Do I Need Insurance Before I Close On a Home?

Depending on your lender’s preferences, you may need to show proof of homeowners insurance anywhere from three to 15 business days before you close on your home. In addition, your lender may require you to pay for one year’s worth of homeowners insurance up front.[1]

Although it’s usually required by mortgage lenders, homeowners insurance is not required by law in any state. As a result, you don’t have to buy home insurance before closing if you can afford to pay for your house in full rather than taking out a mortgage. Nevertheless, it’s still recommended that you purchase coverage to help cover the cost of repairs if a covered peril like fire, wind, theft or vandalism causes significant damage to your home or personal property.

How Early Should I Shop for Insurance Before Purchasing a Home?

It’s recommended that you start shopping around for homeowners coverage right after you sign a contract to purchase a home. This should give you at least a month to compare quotes from multiple insurers and find the best homeowners insurance policy available before your closing date.[2]

Once you begin paying off your mortgage, your lender will likely take some money from your monthly payments and put it into a homeowners escrow account. Then, your lender will use money from that account to cover expenses like your homeowners insurance premiums, property taxes and private mortgage insurance premiums on your behalf.

When Do Lenders Require Homeowners Insurance?

Lenders require homeowners insurance coverage in most circumstances so they can protect their investment in your property for as long as you are still paying off your loan. However, you may not have to pay for homeowners insurance through an escrow account if you make a down payment of at least 20% of the value of your home.[3]

Most likely, your lender will require you to buy enough dwelling coverage to completely rebuild your home if necessary. In addition, you may also have to buy earthquake or flood insurance if you live in a region that is prone to natural disasters since these perils are typically excluded from home insurance coverage.

If you don’t buy homeowners insurance yourself, your lender may buy a force-placed insurance policy to cover your property and pass the cost off to you in the form of increased mortgage payments.

Force-placed insurance is often more expensive and provides less coverage than traditional homeowners insurance, so it’s important that you buy coverage for yourself before your lender has to step in.

How To Shop for Insurance Before Closing On a Home

If you need homeowners insurance for your new home, it’s recommended that you contact three to five separate homeowners insurance companies to receive quotes. You’ll need to give your prospective insurers information like the home’s age, its address and the condition of its roof, along with how many people will be living there after you close on the house and your family moves into it.

Of course, reaching out to insurance carriers individually can be a bit cumbersome, especially when you’re on a deadline as your closing date approaches. Fortunately, shopping for insurance during escrow can be quicker and easier by taking advantage of SmartFinancial’s insurance marketplace platform.

You only need to fill out our online questionnaire one time and then we’ll share your information with homeowners insurance agents in your area who can offer you customized policies based on your needs and budget. If you’d like a free home insurance quote today, you can begin the process by inputting your zip code below.

Get Your Free Home Insurance Quote Today!

Can I Change Homeowners Insurance With Escrow?

Even if you pay for homeowners insurance through an escrow account, you are free to switch policies if you find a better deal from a different insurance company. Once you have bought a new policy and canceled your existing policy, you simply need to inform your lender about the change and they will begin using the money you pay into your escrow account to make homeowners insurance premium payments to your new insurance company.

You may receive a prorated refund from your prior insurer if you switch homeowners policies before the end of your coverage period. If this happens, it’s recommended that you put this refund back into your escrow account to make sure there is enough money in the account to cover the first premiums for your new home insurance policy.


Should I consider getting home insurance before closing?

It’s very likely that your mortgage lender requires you to get homeowners insurance before you close on your new home. Even if you don’t need a home loan, it’s a good idea to buy coverage before you close so you can insure your property against unexpected perils.

Why is home insurance added in escrow?

Your lender may handle your homeowners insurance premiums through an escrow account to ensure that you don’t miss any insurance premium payments and risk losing your home insurance coverage. This helps your lender protect their own investment in your property until you finish paying off your loan.

Do I have to pay for home insurance through escrow?

You are often required to pay for homeowners insurance through an escrow account if your down payment is less than 20% of the value of your home or if you take out a Federal Housing Administration loan.[3]

Does escrow pay for homeowners insurance?

When you pay into an escrow account, your lender will generally use that money to pay your homeowners insurance premiums and other expenses like your property taxes. As a result, it is still your money that is going toward the insurance premium payments but your lender is the one who is responsible for submitting the payments.


  1. Farmers Insurance. “When Should I Get Homeowners Insurance?” Accessed August 25, 2023.
  2. Travelers Insurance. “Do I Need Homeowners Insurance and When Should I Buy It?” Accessed August 25, 2023.
  3. Capital One. “What Is Escrow and How Does It Work?” Accessed August 25, 2023.

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