Escrow Account

What Does Escrow Account Mean?

An escrow account is an account used to deposit money intended for a specific purpose at a future date. In the context of insurance, a person may use an escrow account to set aside funds for paying insurance premiums. The account holder can authorize the bank to withdraw funds from the account to cover these premium payments.

Insuranceopedia Explains Escrow Account

Escrow accounts can also be utilized for insurance settlements. In these cases, the insurer may deposit a specific amount into an escrow account until the exact settlement amount is determined and processed. Once finalized, the funds can be paid out to the policyholder or beneficiary. Essentially, escrow accounts serve as a temporary, secure place for holding money designated for a specific purpose.

For most consumers, the everyday version of this is the mortgage escrow account, where the lender collects a portion of the annual homeowners insurance premium with each monthly payment and pays the insurer directly when the policy renews. The amount held in escrow generally tracks what your insurer charges, so reviewing the average cost of homeowners insurance can help you tell whether your monthly escrow figure looks reasonable.