Insurance companies ask that home insurance is paid annually at the beginning of each year that you want coverage.
So let s say that you already fully own a house, no more mortgage, and you want to get home insurance. You will have to pay the one year premium right away and you ll get coverage for one year.
So the mortgage company make you pay the one year premium at closing for the current year coverage + it will get monthly payments (1/12th of the annual premium) to put in an escrow account so that it (the lender) can pay the annual premium at the end of the year which will cover the entire following year. And then again and again for the next years.
This was super confusing for me too and no one had made a clear answer.
Also, if you change lender or pay off your mortgage (like when you sell or at the end of the mortgage), anything in the escrow account will be refunded to you.
The escrow account usually also includes the property tax. The property tax, as opposed to home insurance, is paid at the end of the period. So let s say property tax is due every 6 months, when you pay it, you pay it for the previous six months. So that s why for property tax you just pay monthly (1/6th of it) to the escrow account but there is no 6 months or one year upfront cost.