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What to do after buying a new home insurance policy

On Behalf of | Sep 16, 2019 | Insurance Law |

There are many reasons why a homeowner in Washington state may wish to obtain a new insurance policy on his or her property. Perhaps there is a better price available. Perhaps the current insurer engages in practices or espouses politics that the homeowner finds morally objectionable. Insurance is, of course, a necessity for any homeowner who pays a mortgage. However, while the mortgage lender can require a  customer to carry insurance, it is up to the customer to decide from which insurer to buy. This means the homeowner is at liberty to obtain a new insurance policy on his or her property as desired. 

However, there are two very important steps to take after purchasing a new policy. Failure to take these steps could end up costing the homeowner greatly. 

Cancel the old insurance policy

Sometimes a representative of the new insurance company will offer to contact the old one and cancel the previous policy. However, if the new insurer does not offer, it is necessary for the homeowner to call the previous insurer to cancel the old policy. The Washington Office of the Insurance Commissioner cautions that failure to do so could mean that the mortgage lender could mistakenly pay premiums to two different insurers, something most homeowners can ill afford. Even if the representative of the new company does offer to cancel the old policy, the homeowner may want to make contact with the previous company to confirm.

Return the refund to the mortgage lender

Once the homeowner cancels the previous policy, the initial insurer may withdraw funds from the escrow account intended to pay the premium and refund them back to the homeowner. While the homeowner may experience the temptation to cash or deposit the refund check and put it to other uses, advises that it is more prudent to submit the check back to the mortgage company so that the lender can then re-deposit it into the homeowner’s escrow account. If the homeowner does not pay back the escrow, it could result in a shortage that could increase the homeowner’s monthly mortgage payments, which could well defeat the purpose of obtaining a new policy.