Home Warranty and Homeowner’s Insurance: What’s the Difference?
Buying
Let’s face it. Life happens…accidents occur. Unfortunately, it’s not uncommon for something to break after you move in. And these incidents always seem to transpire at the most inopportune times, don’t they? The best thing a new homeowner can do to prevent costly repairs is by choosing the right kind of home coverage. But along with so many other real estate terms, there can be some confusion- especially for the first-time homebuyer. Home warranties and homeowner’s insurance are two of those terms that often get misunderstood; they both provide protection for your home…but in very different ways.
Let’s take a look at the differences between a home warranty and homeowners insurance (and why you need both on your house).
Home Warranty
A home warranty is optional and typically purchased by the seller prior to or at closing (though the buyer can purchase it as well). A policy generally covers repairs and replacements of main home’s systems and appliances in the house including plumbing, heating and cooling, electrical and appliances.
What’s Typically Covered?
Heating and Cooling Systems- Your air conditioner and furnace will wear out over time; even if it’s properly maintained. A home warranty provides coverage for tune-ups, repairs and even replacements for your HVAC system.
Appliances- From a busted home oven to a broken garbage disposal, home warranties cover for the repairs and replacements of appliances. It usually also covers dishwashers, cooktops, trash compactors, ceiling fans, electrical systems and even security alarm coverage.
Plumbing Systems- Toilet troubles? A home warranty will cover for a plumber to come and fix your plumbing system, sump pump, hot water pump, water heater, and even your bathroom whirlpool motor pump.
What’s Typically NOT Covered?
Home warranties often do not cover items such as roofs, cosmetic repairs, underground plumbing, sewer, damage caused by weather.
How’s It Work?
In order to obtain coverage initially, you will have to provide a home inspection report and receipts that prove any prior repairs. Then, when a homeowner experiences a problem with one of the systems listed above, they simply call up their home warranty company and explain the (unfortunate) situation. The homeowner pays a flat-rate service fee and the company calls up their trusted local contractor to diagnose and fix the problem. For malfunctioning systems or appliances that have to be replaced, this can save the owner thousands of dollars in costly repairs.
Home warranty coverage varies from policy to policy and from state to state; they are not necessarily all-inclusive. Some may include items such as septic systems, pool or spa as part of their coverage, while others may offer that same coverage, but at an additional cost. As you should for all your real estate documents, read the fine print.
Homeowner’s Insurance
Most homeowners are required to have insurance, particularly if they have a mortgage. Homeowners insurance covers accidental damage to the interior and exterior of the home and personal belongings from natural disasters such as fire, rain, hail, wind, trees, floods, etc. It also covers an owner’s personal belongings due to vandalism or theft.
As it is with home warranties, homeowner’s insurance policies vary. Some may cover storm damage, but will not cover hurricane damage. Standard homeowner’s insurance policies do not typically include earthquake damage or flood insurance. A home located in an area prone to flooding will require separate flood insurance.
Liability coverage is also a typical component of a homeowner’s insurance policy. No one wants to think about the possibility of a visitor having an accident in his or her home, but it could happen. And you should be prepared.
Should the unexpected occur, like a dog bite, this coverage may help protect you. Believe it or not, the liability coverage you gain through your homeowner’s insurance policy may help cover medical bills, pain and suffering, lost wages, death benefits and even legal costs.
How’s It Work?
Experts recommend homeowners should insure a home for the total amount it would cost to rebuild the home and replace personal items if it were destroyed. Consider construction costs, square footage of the structure, style of house, number of rooms, type of roof and special features. Then make an inventory of everything you own in your home including make/model numbers, purchase price, present value and date of purchase.
Then, you’ll be prepared when the unexpected happens. For example, if your toilet leaks and floods your top floor, an insurance adjuster will come to the home and fill out a claim for repair and replacement of any items damaged in your home. Once approved, the insurance company will deduct the amount of your deductible and issue you a payment for the rest of the balance to repair your home.
Be sure to shop around and compare coverage options, rates and deductibles before you commit to any one policy.
Home Warranty and Homeowner’s Insurance: Why You Need Both
Ideally, homeowners should have both insurance and a home warranty. Both are needed to provide you and your family complete home protection.
If damage is done to the structure of your house or belongings, a home warranty can help cover the costs of repairs or replacements required. For example, if a fire is caused by a malfunctioning electrical system within the house, the owner will have to pay to have the appliance fixed out of their own pocket, unless they have a home warranty. And similarly, if a homeowner experiences water damage due to an overflowing toilet, their home warranty will cover the toilet repairs, not the flood damage… but home insurance will.
Gain peace of mind when buying a new house and keep your largest investment protected in as many ways as possible. Because when the unexpected happens, it’s good to be covered.
