Yes, you generally receive a refund if you change homeowners insurance, especially if you cancel your policy before its renewal period.
Understanding Your Homeowners Insurance Refund
When you decide to switch homeowners insurance companies before your current policy's annual renewal date, your previous insurer will typically issue a refund. This refund is not for the entire premium you paid but is calculated on a prorated basis. This means you are refunded the portion of your annual premium that corresponds to the time remaining on your policy after you've canceled it. You're essentially getting back the money for the coverage you've paid for but will no longer use.
How Prorated Refunds Are Calculated
A prorated refund ensures fairness by only charging you for the period you were actually covered.
- Example: If you paid your annual premium of $1,200 upfront and cancel your policy exactly six months into the year, you would generally be refunded approximately half of that amount, or $600, for the remaining six months of coverage.
- Key Factors: The exact refund amount depends on:
- Your annual premium.
- The effective date of your policy cancellation.
- The number of days, weeks, or months remaining on your policy term.
Receiving Your Refund
The process of receiving your refund can vary depending on how you pay for your homeowners insurance.
- Direct Payment: If you pay your premiums directly to the insurance company (not through an escrow account), the refund will typically be sent directly to you by check or direct deposit.
- Escrow Account: If your mortgage lender manages your homeowners insurance payments through an escrow account, the refund will usually be sent to your lender. The lender will then either apply the refund to your escrow account balance, which can reduce your monthly mortgage payment or result in an escrow surplus, or they may send it back to you, depending on your escrow agreement and balance. It's wise to contact both your previous insurer and your mortgage lender to understand the exact process and timeline.
For a deeper dive into how insurance refunds work, you can explore resources on understanding insurance refunds.
Important Considerations When Switching
When changing homeowners insurance policies, always ensure there is no lapse in coverage between your old and new policies to protect your home continuously. Confirm the cancellation with your previous insurer and ensure you receive documentation of the cancellation and refund details.
