What to Do if Your Mortgage Company Doesn’t Pay Your Insurance

Why Do Mortgage Companies Pay Your Homeowners Insurance?

When you finance a home purchase, your lender may require you to open an escrow account, which is used to hold money for your future home insurance premiums and property tax bills. You'll fund this account with an upfront payment at closing, and part of your ongoing monthly payments will go toward the account as well.

With this approach, lenders can ensure you always have coverage on your home, which protects both your and their financial investment.

Learn more: How Does an Escrow Account Work?

What if You Receive Notice Your Insurance Payment Is Late?

In taking charge of your insurance payments, your lender assumes responsibility for making those payments on time. That obligation is one of many spelled out in the Real Estate Settlement Procedures Act (RESPA), a law that regulates homebuying.

Still, because the insurance policy is in your name, the insurance company will reach out to you directly if there are any issues with late or missed payments. For this reason, it's important you open and read all mail from your insurance company and review any phone messages or emails you get from them too. In some states, you could only have a couple of weeks from notification to policy cancellation, so it's critical to act fast.

If you receive notice that your insurance premium has not been paid, you should:

1. Contact your mortgage servicer immediately. Call or email the mortgage company using the information in your payment coupon book or other documentation. Legally, your mortgage servicer is responsible for having your policy reinstated or purchasing another policy on your behalf.
2. Document everything. Keep a detailed list of all communications regarding the matter, including how and when you first learned about the payment issue; all communications with the mortgage company, including times, dates and names of individuals you spoke with; and hard copies of any emails or other correspondence, along with proof of delivery.
3. Follow up in writing. Send your mortgage servicer a letter or email summarizing the issue and any conversations you've had with the company regarding it. Include a copy of the notification you received from your insurance company too.
4. Stay on top of your mortgage payments. Keep making your mortgage payments on time as the issue is resolved. It's important you adhere to your part of the loan contract, just as the lender must adhere to theirs.
5. Confirm the insurance payment yourself. If the mortgage servicer tells you a payment has been made and your policy is back in good standing, confirm that with the insurance company directly.

Hang on to your documentation even after the matter is resolved. Even if the late payment was an isolated event, keeping records could be helpful if problems occur again.

Learn more: What Is Home Insurance?

Can a Missed Insurance Payment Impact Your Credit?

Insurance companies don't report late payments to the national credit bureaus, so a mortgage servicer's late payment wouldn't result in negative entries on your credit reports.

An insurance bill left unpaid for an extended period (typically 90 days or more) could lead the insurer to turn the bill over to a collection agency, though. That would appear as a negative credit report entry that would stay on your credit for seven years. It would also lead to a significant drop in your credit scores.

Fortunately, following the steps outlined above would make that scenario highly unlikely, however.

How to Avoid Late Mortgage Payments

One reason mortgage companies insist on establishing escrow accounts is to ensure they have sufficient funds to pay insurance and tax bills on time—even if you're occasionally late with a mortgage payment. Making late payments can do serious harm to your credit and, if you miss multiple payments, lead to loss of your home.

There are several practical steps you can take to avoid late payments on your mortgage and other bills, including:

• Set up automatic payments. These are automatically deducted from your checking account monthly, ensuring your payments are never late. Just make sure the date you select for these payments is close to payday, so you know there will always be sufficient funds in the account.
• Implement a reminder system. Set up calendar alerts that remind you via email when a payment is due, or set a recurring alarm on your phone. There are also money management apps that can help you track payment dates and other important deadlines.
• Establish a monthly routine. Have a defined routine for how you'll pay your bills each month—mortgage payments and beyond. If you share bill-paying responsibilities with another person in your household, make sure you designate who will pay which bills and when.
• Communicate issues early. If you find yourself unable to make a mortgage payment, reach out to your mortgage servicer as soon as possible, ideally before you miss a due date. They may have options you can explore, such as forbearance, refinancing or loan modification.

Learn more: How to Avoid Late Payments

The Bottom Line

Missing insurance payments isn't common, but it does happen, and it could impact your home's coverage—or your credit—in the long run. If your mortgage company has missed a payment, check your credit report and FICO^® Score^Θ for free with Experian to see where your credit stands. You can also use Experian's free credit monitoring to keep an eye on your credit over the long haul.