Recently, the credit union that handles our home mortgage had a bit of an issue. They called us up to inform us that our homeowners insurance had been cancelled, which was incredibly awkward considering we pay into an escrow account for our insurance and our insurance payments are taken straight from that account. What happened? The credit union claimed that the insurance company never billed them (they require paper bills). The insurance company claimed that they billed the bank. And I’m the one caught in the crossfire with a lapse in my homeowners insurance.
Here’s the disturbing part – this exact thing happened once before.
(To say I was upset is an understatement.)
Clearly, there was a problem somewhere in this system. Was it the credit union’s fault due to some mishandling of the bill from the insurance company? Was it the insurance company’s fault due to a bill that was never sent?
It’s impossible for me to know which group was at fault. If the insurance company did bill, then it’s the credit union’s fault. If they didn’t bill, then it’s their fault. (I have received copies of the bill along the way, which instructs me that the lender is also being billed and that my insurance payment will be made from my escrow account.)
Whenever something like this happens in your life – and it will eventually happen with something – I recommend following a series of steps to resolve the situation.
Attempt to figure out where the problem occurred. In the situation above, the closest I can come to figuring out where the problem actually occurred was in that billing cycle. If nothing else, I can say that the credit union wasn’t proactive with regards to the escrow account – there should have been some sort of earlier flag that indicated that an insurance payment hadn’t been made before the point of cancellation was reached.
If a problem like this occurs with you, spend the time to figure out what caused the problem to happen in the first place. Contact all involved parties and determine, to the best of your ability, the specific thing that went wrong in the transaction.
Minimize the number of players. Once you’ve figured out what went wrong in that transaction, you should seek to minimize the number of players involved in the transaction if at all possible – and if you cannot, look for a way to change the players involved in this transaction.
In my own situation, I sought to eliminate a player from this transaction – namely, the holder of my mortgage. I requested permission to pay for the homeowners insurance directly without using their escrow account and, given the situation, the credit union quickly approved this request. This made the transaction for my insurance occur between just myself and my insurer.
Minimize the potential avenues of failure. Another potential avenue for failure in this equation is human error. Assuming that the credit union was receiving the bills, human error was causing the bill to remain unpaid. One way to minimize future potential problems is to simply minimize the number of ways in which human error can fail.
One method of doing this is to simply have direct deposit billing, in which the correct amount is withdrawn directly from your checking account. Once I had control over the payments for my homeowners insurance, I signed up for this form of billing so that human error – a lost piece of mail, etc. – wouldn’t result in a lapse in my homeowners insurance in the future.
These tactics go beyond resolving problems. They’re good tactics for every significant financial transaction in your life. Minimize the number of players. Minimize the potential avenues for problems. Taking those simple steps can reduce the amount of regular effort you need to put forth while also minimizing the chances of such a mistake.