After a Disaster, Your Insurance Payout Could Finally Earn You Interest—Thanks to New California Law

 

What you need to know: Governor Newsom on Friday signed into law legislation to allow homeowners who receive insurance payments for lost or damaged property to receive the interest accrued rather than lenders. 

August 31, 2025 - LOS ANGELES — On Friday, as part of the state’s continued efforts to support Los Angeles firestorm survivors, Governor Newsom signed into law Assembly Bill 493 (Harabedian) to ensure homeowners, not lenders, benefit from the interest earned on insurance payouts, particularly those impacted by California’s most destructive wildfires. 

The legislation signed today corrects an inequity that allows lenders to keep interest accrued on insurance payouts held in escrow after a disaster.

“Homeowners rebuilding after a disaster need all the support they can get, including the interest earned on their insurance funds. I am proud to deliver this commonsense solution to ensure survivors receive every resource available to help them recover and rebuild.”

Governor Gavin Newsom

After a disaster, insurance payouts are often held in escrow while construction is ongoing, which can take months or even years. 

While California law requires lenders to pay homeowners interest on escrowed funds for property taxes and insurance premiums, it previously did not extend this requirement to hazard insurance payouts held in escrow. The new law explicitly requires lenders to pay homeowners the interest earned on post-loss insurance payouts, just as they do for other escrowed property expenses. 

Why This Matters:

✅ Fairness: Homeowners should receive the interest their insurance funds generate—not lenders.

✅ Disaster Recovery: Provides much-needed financial support for wildfire victims rebuilding their homes and communities.

✅ No New Burdens on Lenders: Simply aligns insurance payout escrow rules with California’s existing interest on impound account law.

✅ Protecting Homeowners’ Rights: Ensures insurance funds are treated the same as other escrowed property expenses.

This legislation ensures that homeowners benefit from the interest earned on insurance funds, particularly those impacted by California’s most destructive wildfires.

Learn more about California’s rebuilding and recovery efforts after the LA Fires

Source: Office of the Governor