Texas rental insurance: mortgage and escrow

Short answer. No Texas law requires insurance on a rental house, but if you have a mortgage, your lender will. The lender is named on the policy as mortgagee and is paid on a covered claim to the building. With an escrow account, your lender pays the insurance bill from part of each mortgage payment.

Texas law also limits what a lender can demand. In this guide "lender" means your lender or the company that services your loan. A lender cannot make you use a particular agent or insurance company, and cannot require coverage above the replacement value of the house and its contents.

Is landlord insurance required in Texas?

Not by law. The Texas Department of Insurance (TDI) home insurance guide says: "The law doesn't require you to have home insurance. But if you still owe money on your home, your lender will require you to have it" (TDI Home insurance guide). A financed rental works the same way: the loan documents make insurance a condition, and the lender checks for proof.

What lenders typically ask for

Loan documents vary, so read yours. Common requirements include:

• The lender named as mortgagee on the declarations page, usually with "ISAOA/ATIMA" after its name, short for "its successors and/or assigns, as their interests may appear", which keeps the lender covered if the loan is sold. On the Texas Department of Insurance's standard dwelling form (TDP-3, last revised in 2002; many insurers now use their own approved forms), the insurer pays covered loss to buildings "to the mortgagee shown on the declarations page as interests appear," must give the mortgagee written notice if the policy is cancelled, and must give 30 days' written notice of a nonrenewal (TDP-3, Mortgage Clause); what to do if that notice comes: Insurance not renewed or cancelled in Texas?
• Deductible limits. For loans sold to Fannie Mae, "the maximum allowable deductible for all required property insurance perils for one-to four-unit properties is 5% of the property insurance coverage amount," and where a policy has separate deductibles, such as windstorm, "each individual deductible must not exceed 5% of the property insurance coverage amount" (Fannie Mae B7-3-02, August 5, 2026). That cap matters in Texas, where wind and hail deductibles are often a percentage. See Texas wind and hail deductibles, explained.
• Replacement cost on the building. The same guide requires coverage "on a replacement cost basis, with the exception of roofs." Roofs "do not have to be insured on a replacement cost basis." See Roof ACV vs replacement cost in Texas.
• Flood insurance, if the house is in a high-risk flood zone. "If your home is in a designated flood zone, your lender requires you to have flood insurance" (TDI). For a building in a Special Flood Hazard Area with a loan from a federally regulated or government-backed lender, FEMA calls this the "mandatory purchase requirement," and some lenders require flood insurance "regardless of the flood zone" under the loan terms (FEMA F-084). A lender can force-place flood coverage too. See Water damage and flood on a Texas rental.

Loans not sold to Fannie Mae follow their own investor's or lender's rules. For what a landlord policy itself covers, see Texas landlord insurance: what a DP-3 covers.

What can't a Texas lender require on my rental's insurance?

Chapter 549 of the Texas Insurance Code limits lenders (Ins. Code ch. 549):

One exception is worth knowing about. §549.056(b) says this subchapter does not stop a lender from "requiring insurance from an insurer that is authorized to engage in business in this state and that has a licensed resident agent in this state." Some landlord policies in Texas are written by surplus-lines insurers, which are not authorized (licensed) insurers in Texas (Ins. Code §981.002), so a lender may be able to refuse one. But Texas's collateral-protection law expects that an eligible surplus-lines policy can meet a loan's insurance requirement (Fin. Code §307.052), and the standard Texas deed of trust says the lender won't disapprove your choice of insurer unreasonably (Form 3044 07/2021, §5(a)). Check your loan documents, or ask the lender in writing before you switch.

The $10 limit in §549.051 is written for a new policy "provided through an insurer authorized to engage in business in this state," so, on our reading, it does not protect a switch to a surplus-lines policy.

How escrow pays your insurance

The Consumer Financial Protection Bureau (CFPB) describes it this way: "You make the payments to the lender, and the lender holds the part of the payment that is for insurance in an escrow account. Then, when the bill for the insurance is due, the lender pays it from the escrow account" (CFPB).

The lender pays whatever bill it receives for the policy on file. It does not know you have switched unless you, your agent or the new insurance company tells it.

Escrow or you: who pays each renewal

A new or renewed policy can be paid in one of two ways. Pick one before the policy starts:

1. Escrow pays. The new policy should be set up to bill your lender (often shown as "mortgagee billed"). Send the lender the new declarations page so it pays the right bill.
2. You pay it yourself. Tell your lender first, so it doesn't also pay from escrow, and send it the declarations page as proof of coverage.

Lenders often take proof of insurance through an online insurance tracking site, where you upload the declarations page with your loan number. The declarations page is the first page of your policy: it shows the insured, the dates, the coverages and deductibles, the premium and the mortgagee. It came with your policy. Look in your email or your insurance company's online account, or ask your agent.

If it happens anyway, it can usually be sorted out, but the refund may take weeks or longer. A double payment usually starts when a policy is switched or renewed and the lender isn't told who is paying. How fast a duplicate payment comes back depends on your loan and on whether the duplicate policy is cancelled. When you switch mid-term, the old policy's unearned premium comes back separately; see How to switch rental insurance in Texas.

Lender-placed (force-placed) insurance

If the lender has no proof that your policy is in force, it may buy a policy itself and charge you for it. The CFPB warns that "Force-placed insurance is usually more expensive than finding an insurance policy yourself," and "In many instances, this insurance protects only the lender, not you" (CFPB).

On a rental you don't live in, the federal notice and refund rules (12 CFR §1024.37) often don't apply (12 CFR §1024.5(b)(2); Reg. Z comment 3(a)-4), and Texas law lets a lender insure if you haven't shown a replacement by the 15th day before your policy ends (Ins. Code §549.056(d)). Why it happens, what it covers, and how to get it removed: Force-placed insurance on a Texas rental.

A short checklist

• Is your lender named correctly as mortgagee, with your loan number?
• Is each deductible within your loan's limit (for example, 5% of the coverage amount each, for Fannie Mae loans)?
• Is the house in a high-risk flood zone, and does your lender require flood insurance?
• Who pays this term: escrow or you? Does the policy's billing match?
• Has the lender received and confirmed the new declarations page?
• If the new policy is surplus lines, will your lender accept it?

AIV Insurance is an independent insurance agency in Texas. When you buy or renew a policy through us, we get the new declarations page to your lender and track whether the lender confirms it. We don't pay premiums or handle refunds; your insurance company and your lender do. Questions about your own loan's requirements are best answered by the lender. To talk through your rental's insurance, reach us through the contact page.