This article was contributed by Arthur Murray, a contributor to the HomeownersInsurance.com blog: https://homeownersinsurance.com. HomeownersInsurance.com serves as a resource center for insurance consumers and homebuyers across the country.
You’re finally buying a home, living the American dream. In the days leading up to closing, everyone keeps asking questions and telling you about things you need to buy. It can all start to run together, especially when some of those things have similar names such as a home warranty and home insurance. Do they both offer protection for your house and the stuff in it? Yes. Is there a difference? Yes.
Let’s look at both and what they provide.
Home insurance offers protection for your house and your possessions inside it from damage caused by specific problems – fire, wind, break-ins and more. Standard policies also provide liability coverage in case someone is injured on your property. Your lender will require you to buy home insurance before finalizing your mortgage.
One thing to note: Homeowners insurance does not offer help if there’s a flood or earthquake; coverage for those natural disasters must be purchased separately.
There are two types of home warranties: new home structural warranties and systems and appliances warranties. Home builders often provide a structural warranty, which provides help for a specified period if there’s a problem with the workmanship or materials used in the construction of the house or issues with the electrical, plumbing or other systems after construction. A structural warranty also provides coverage in the event of a structural defect. Coverage usually lasts 10 years from the date the home was built. (How this sort of claim is paid can depend upon the product the builder used and whether or not the builder self-insures. Consult with your builder for specifics.)
The systems and appliances warranty, also referred to as a home warranty service agreement, covers the repair or replacement of most of the important systems and appliances within a home such as refrigerator, dishwasher, HVAC units, plumbing system, electrical wiring, etc. that malfunction because of normal wear and tear. How essential is it? Consider that the average house needs repairs of this kind at least twice a year, which can cost up to 3% of the home’s original purchase price. With a home warranty service agreement, you pay a service fee to the service contractor for the visit and diagnosis, and the repair is covered up to the limits of the service agreement. Meaning, if your home warranty service agreement has a $2500 limit on an air conditioner, then your home warranty company would pay up to $2500 for repairs. The balance would be the responsibility of the homeowner.
Which covers this?
Now that you understand more about home insurance and a home warranty, let’s test your knowledge. Which would you use in the following scenarios?
- Your refrigerator stops chilling: Home warranty service agreement.
- Your heat pump stops working: It depends on why it doesn’t work. If your unit was struck by lightning, for example, you could file a claim on your home insurance. If the unit is worn out, you’d need to use your home warranty service agreement.
- Your washing machine breaks, damaging your laundry room: You’d use both in the scenario. Your home insurance could cover the structural harm to the house, while the service agreement would pay for repairs to the washing machine.
- A kitchen fire damages your stove: Home insurance, especially if there’s other damage from the fire.
So which do you need? The above examples make a good case for both. Otherwise, you could be faced with coming up with the money to pay for major repairs. Don’t let your finances get away from you; keep your largest investment protected in as many ways as possible.