The Second Envelope, and Who's Left Holding the Risk

Home insurance keeps getting more expensive, and the risk behind those bills doesn't stay with the people who first carried it. New Federal Reserve research follows which owners leave, which fall behind, and which companies buy the houses. Other records show where the risk goes after that.

Karyn Perry of Minnesota has a correspondent she'd rather not have, and it's her mortgage company. Once a year it writes to tell her the account it keeps for her insurance and property taxes has come up short. In 2023 the shortfall was about $2,000. In 2024 it was a little over $3,000. In 2025 it was $4,751. Perry told KSTP she was given two ways to handle it: pay roughly $400 more a month, or hand over the whole amount at once.

Her property taxes went up too, so the insurer doesn't get all the credit. But plenty of people will know the order these things come in. The insurance renewal shows up first. You read the new number, say something you wouldn't say in church, and leave it on the kitchen counter. A few weeks later a second envelope arrives from a different outfit to tell you what that first number is actually going to cost.

Paying for one raise twice

Most people with a mortgage never write a check to their insurance company. The servicer does it for them. That's the company you send your mortgage payment to, and often it isn't the bank that made the loan. The servicer holds back part of each payment in an escrow account and pays the insurance and tax bills out of it. Once a year it goes back over the figures. If your premium went up since the last look, the account paid out more than it took in. The gap is called a shortage.

Under federal rules, when the shortage runs bigger than one month's escrow payment, the servicer can't demand it in one lump. It has to let you spread it over at least twelve months, though you're welcome to pay it all at once, which was Perry's second option. Meanwhile your regular escrow amount climbs to cover next year's higher premium. So the same monthly check is paying back last year and paying ahead on next year.

Run it with round numbers. Your premium goes up $1,000 a year. Covering that going forward is about $83 a month. Filling in last year's hole is another $83 a month for twelve months. For that first year, a thousand-dollar increase costs you around $167 a month. The insurer raised its price once, you feel it twice for a year, and the explanation comes on the letterhead of a company that set neither price.

How big have these raises been? That depends on who's counting. The Dallas Fed's tally of insurance bills paid through mortgage escrow shows premiums up about 70% from 2019 to 2025. The Government Accountability Office, working from modeled prices instead of actual bills, came out closer to 27% from 2019 to 2024. Neither one tells you how much of the climb is weather and how much is rebuilding costs, lawsuits, regulation, and the insurance the insurers buy for themselves. The family reading the renewal doesn't get to choose which measure applies to them.

Who moves, who falls behind, who buys

Three economists, Ge, Johnson and Tzur-Ilan, set out to learn what households do once that letter shows up. Their study, put out by the Federal Reserve Bank of Dallas, is a working paper, which is economist talk for a draft: preliminary, not yet through final review. It follows single-family homeowners with mortgages from 2013 through 2023.

Doing this honestly is harder than it sounds. Insurance tends to get pricier in places that are changing in other ways at the same time, so it's tough to say what the premium did by itself. The authors got around that by looking at rate increases an insurer passed along because of losses it took somewhere else in the country. If a family in one state pays more because its insurer got hammered by hurricanes in another, that raise has nothing to do with the family's own street, and it makes a cleaner test. It also tells you something about what you're buying with a policy, which is a share of the company's bad luck wherever it happens to fall.

Their benchmark was paying $1,000 a year more to insure a house covered for $500,000. Within twelve months, that increase went along with three things:

• More late payments. The share of borrowers at least 60 days behind on the mortgage rose from about 1.7% to about 2.1%, nearly a quarter more households in trouble.
• More moving. The share who moved rose from about 4.7% to about 5.5%.
• More investor buying. The share of homes bought by investors went from about 4.1% to about 5.0%. The authors consider this the least certain of the three.

Twelve months also happens to be about how long a servicer spends collecting last year's shortage on top of the new, higher payment. The study doesn't claim that's what tips people over. The two just land in the same year.

Who did which depended heavily on credit. The economists sorted borrowers by their credit score when they took out the loan. Owners at 780 or higher, which is very good credit, mostly answered the price increase by moving, and their late payments barely budged. Owners below 680, which is fair credit or worse, went the other way. Their bump in moving was less than half the size of the high-score group's, and their bump in missed payments was about seventeen times bigger. Borrowers who started with small down payments or heavy debts leaned the same direction: less moving, more falling behind. These group-by-group numbers come from a simpler, correlation-style run through the data rather than the cleaner test described above, so treat them as showing a direction, not a precise measurement.

The paper puts its finding this way:

That's careful phrasing. Translated into kitchen English, it says leaving costs money, so the ones who leave tend to be the ones who have it. The ones who don't are more likely to stay and fall behind on a house they can't afford to get out of.

The owners who can afford to leave

Jim and Debbie McGuigan, profiled by AARP, show leaving at about its best. They lived in a Cocoa Beach high-rise where insurance premiums tripled in a few years. Between the insurance and the repairs required to keep the coverage, their condo association fees rose 141%. They moved back inland and now save $4,760 a year on insurance and fees. A condo, where the costs come through the association, isn't the mortgaged single-family house the study tracks. Still, it's the same shape. The cost went up, and they had the means to walk.

Deborah Brown's version, as she told Yale Environment 360, went rougher. Her insurer dropped her in 2017, and the replacement quote was $8,000, double what she'd been paying. She and her husband sold. When the story ran, they were splitting their time between an RV and their daughter's house.

A study like this one writes both households down the same way, as a move. It has no way to tell a planned retirement from a couple sleeping in their daughter's spare room, and the records it's built from were never meant to know the difference.

The owners who stay

Karyn Perry's choice, $400 more a month or $4,751 at once, is where a stayer lives. The study says the owners with the least slack in their budgets are the ones who stay put and start falling behind.

For that owner the worst danger is losing the policy altogether, and it usually isn't the late payments that do it. If your insurance runs through escrow, falling behind on the mortgage generally doesn't let the servicer swap your policy for one of its own. It's supposed to keep paying your premium, short account or not. The usual road to trouble runs through the insurer: a cancellation, a refusal to renew, a lapse with nothing behind it.

Then the servicer can buy insurance on the house itself and send you the bill. This is called force-placed, or lender-placed, insurance. You get two warnings before you're charged, and showing proof of your own coverage ends it. Those warnings matter, because state regulators say force-placed coverage generally costs a good deal more and usually doesn't cover your belongings or protect you if somebody gets hurt on your property. The federal consumer bureau warns it can run twice what you'd been paying. Follow that through and the household least able to afford insurance can end up paying the most for the least of it, on a policy built mainly to protect the lender's interest in the building.

The owners nobody's counting

John Cobarruvias of Clear Lake, Texas, isn't in the Dallas Fed study, and he couldn't be. His house is paid off. He told ABC13 that in 2000 he paid $750 a year with a $500 deductible, the amount he'd cover himself before insurance paid a dime. After one 25% increase on top of another, he was paying $6,000 with a $9,000 deductible and thinking about dropping coverage entirely. You can follow his arithmetic without a calculator.

The study is built from mortgage records, and mortgage records exist because a lender wants to keep an eye on its collateral. Pay off the loan and nobody's watching anymore. Census figures show 39.4% of owner-occupied homes had no mortgage in the 2020–2024 estimates, up from 34.4% a decade before. Those owners have no escrow account and no lender to force a policy on them. When they quit paying for insurance, no letter goes to anybody.

The Federal Reserve's latest household survey found that 13% of owners without a mortgage carried no homeowners insurance, against 3% of owners with one. Among all uninsured owners, the most common reason given was the obvious one: they couldn't afford it. When they let the coverage go, the risk stays where it was, with them, and it doesn't show up in anyone's records unless something happens to the house.

The buyers with cheaper insurance

On the other side of the sale are the investors, and they've got something the departing family didn't, which is insurance cheap enough to carry. The investors in the paper who buy these houses are companies, not individuals, paying cash or using private loans instead of a regular mortgage. Their insurance doesn't show up in mortgage records. So the authors compared a related group they could see, investors who did use a standard mortgage, against owner-occupants. Where insurance rose by a typical amount, those investors paid premiums 14% lower, paid 8% less per dollar of coverage, insured their houses for 7% less, and carried higher deductibles. That's against homeowners in general, mind you, not against the particular family that sold. The authors give several reasons, and some are perfectly ordinary. A company insuring thousands of houses can bargain. Smaller loans come with fewer lender rules about coverage. Repairs cost less when you've got crews on call. And some investors simply buy less insurance.

The big single-family landlords spell out that last one in their public filings. American Homes 4 Rent reported about $16.4 million in insurance costs in 2025 across 52,757 houses. That comes to around $310 a house. State regulators' most recent national tally put the average standard homeowners policy at $1,737 in 2023. Those two figures don't buy the same protection, and the company says as much. It pays for a lot of damage out of its own pocket, including major disaster losses that may not be insured at all. Its in-house insurance company handles liability claims that fall under the company's deductible; the filing doesn't say it stands behind storm damage. Invitation Homes says that when premiums climb, it may cover more losses itself, take bigger deductibles, or cut back coverage.

So the risk that ran the family off is still sitting on the house. It may now belong to a company with hundreds or thousands of other houses, for whom one county's bad year is a line item. The family had one house, and a bad year could have taken most of what they had.

The people renting it now

Then somebody rents the place. The landlord's policy doesn't cover the tenant's furniture or clothes. For that the tenant needs a renters policy, which also pays for somewhere to stay if the home gets damaged by something the policy covers. Ordinary homeowners and renters policies generally leave floods out.

The lease can go further than that. In Texas, the standard lease form gives the landlord any insurance money paid for damage to the property, and under state law, when the damage is insured, the clock on repairs doesn't start until the landlord gets the check. The tenant waits on a claim they have no part in.

Part of the premium comes back around in the rent, too. Federal Reserve researchers studying apartment buildings found that each added dollar of insurance cost went along with 25 to 40 cents of added rent, about $7 to $12 a month for the average tenant, most likely landing on people renewing their leases. That's apartments, not rented houses, and it shows the two rising together without proving one caused the other. It does suggest the premium the family couldn't carry hasn't vanished. Some of it may be reaching renters a few dollars a month at a time.

What to ask with the envelope on the counter

The whole idea of insurance was that a family wouldn't have to face a fire or a hurricane by itself. On these blocks the risk is running the other way, out of the policy and back onto whoever has the least room to move: the owner who can't sell, the owner nobody's watching, the tenant at the end of the line.

If one of those envelopes is sitting on your counter right now, a few questions can tell you where you stand.

• How much of the jump is the new premium, and how much is last year's shortage being paid back?
• If you dropped or trimmed your coverage, who would find out: your lender, your county, or nobody at all?
• If you sold, could the likely buyer insure the place more cheaply than you can, and how?
• If you rent, does your lease say who gets the insurance money and when the repairs have to start?

None of those answers will lower the premium. They can show you how much of the risk has ended up with you, and how much of it is there because it had nowhere else to go.