What are the pros and cons to paying home owner’s insurance included in mortgage payment or separately?
UPDATED: Jun 22, 2010
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Asked June 22, 2010
First, it is important to differentiate between homeowners insurance and home mortgage insurance. Mortgage insurance is almost always included in your mortgage payments, and that insurance relates specifically to the amount of your mortgage to the company. In the event of the home being destroyed, mortgage insurance pays out to the mortgage company so that they have not lost money on the transaction. Homeowners insurance, or home insurance, is intended to protect the homeowner against costs associated with damages to the home, or losses relating to it. Homeowners insurance pays out to the policyholder (home owner) and even includes personal property, household appliances, and other items belonging to the policyholder.
There is only one disadvantage to paying your homeowners insurance as part of your mortgage and that is that it makes your mortgage payments uncertain. If you add property to the home, your insurance premiums will increase as well, and your monthly payments will go up. On the other hand, if your insurance premiums decrease, you will not see the difference on your mortgage payments for quite a while, and it could take up to a year for the savings to be applied to your mortgage escrow.
On the other hand, if you pay the home insurance yourself, you have the option of paying the premium once a year and saving a tremendous amount of money. Insurance companies will give you a discount for a single yearly payment, and you will save even more by avoiding the monthly costs associated with processing your payments. One popular scenario is to set up a saving account and make monthly deposits that equal the premium payments. This allows your yearly home insurance payment to earn money for you throughout the year, effectively reducing the cost of insurance even further.
Finally, if you have control of your home insurance, you will find it easier to update the policy or submit a new home inventory. Likewise, if you decide that you can find a better deal on insurance with another company, you are free to make the change without getting it authorized through your mortgage company, giving you more freedom to exercise the policy as you see fit.
Answered June 22, 2010 by Anonymous