Home Warranties vs Home Insurance: What you need to know.
The following article is a guest post from Kaitlin Ziessler who is a blogger for American Home Shield. Her goal is to inform readers about the differences between home warranty and insurance plans. Other topics she blogs about include appliance repair tips and home care advice for homeowners and new home buyers.
Protection, security, a good night’s sleep — home warranties and home insurance provide them all. Though it might be tempting to skip the fine print of coverage in favor of a general sense of reassurance, it pays to know the particulars of these two products.
To get the right combination of coverage, home buyers need to understand the possible benefits each offers and also what sets warranties and insurance apart. Such information can prove to be a blessing for consumers needing to make use of the safety net warranties and insurance provide.
Meant to prevent or ease a financial hit if something goes wrong, warranties and insurance operate in different circumstances. Warranties prevent home buyers from having to shoulder the cost of something wrong with the home or its components.
Insurance protects against outside forces that wreak havoc on a property. Another difference lies in coverage time: insurance provides ongoing protection, while warranties expire after a certain specified period.
Homeowners often come by warranties and insurance through different means. While home buyers purchase their own insurance, warranties are often supplied by someone such as a builder. Builder warranties give peace of mind to buyers of newly constructed homes. After all, no one wants to have bought a home riddled with defects. Sellers of existing homes may include a warranty with the sale to nudge a would-be buyer into a purchase. Indeed, if a buyer has a warranty on a house, it can be an advantage in selling a home since the warranty is transferable.
Even when a home buyer isn’t the one providing the warranty, researching warranty companies is a good idea. When the time comes to purchase, the home buyer can then request that the seller goes with a warranty company of the buyer’s choosing. The new homeowner will then already know the specifics of the warranty coverage, how to make a claim, and how claims will be handled.
Home warranties aren’t a blanket promise to resolve problems that arise. Instead, they provide limited coverage on the workmanship or materials of certain elements of a home, including windows, plumbing, and heating, ventilation and air conditioning. How long these items are covered differs from element to element. Components such as plumbing, electrical systems, and HVAC are often covered for two years, according to the Federal Trade Commission. For newly built homes, meanwhile, elements such as drywall, siding, trim, doors, and paint are usually covered for one year. For new construction, this provides owners a sort of break-in — or, perhaps more aptly, break-down — period that ensures buyers purchased the quality home they expected to get.
Owners purchasing or receiving a warranty for an older home might receive coverage on appliances, which builder’s warranties don’t typically include. Knowing the extent of the coverage helps owners not only choose the right warranty, it also lets them plan ahead for future breakdowns and problems a warranty won’t cover.
To choose the right warranty or get to know the one supplied by a builder or seller, buyers should look into the following:
- What items the warranty covers and for how long
- What kind of damage is covered — wear and tear, defect, breakdown or age
- Whether or not pre-existing problems are covered
- Service fees and deductibles
- How repairs will be made and who will handle them
- Caps on what will be paid
- Claims procedures
- Whether you can purchase a replacement item with help from the warranty company instead of having it repaired
- How complaints will be resolved if whomever handles the repair does a poor job
As they would for warranty coverage, homeowners should also shop around for home insurance, not only to get the right blend of coverage, but to save money. Costs vary according to company and by things such as the home’s age, location, construction, and proximity to fire stations.
Consumer guides, state insurance departments, and the National Association of Insurance Commissioners can provide direction to those shopping. These sources can also alert consumers to complaints against an insurer and sometimes have information on rates.
Once a homeowner has a short list of insurance companies, the next step is to call around for quotes. According to USA.gov, discounts may be available for those over 55, long-term customers, and safety features in the home. Safety features include items such as dead bolts, storm shutters, and alarm systems.
When buying insurance, keep in mind that the policy doesn’t need to cover the value of the home including the land — the land won’t be lost in, say, the case of a fire. The value of items within the home, however, ought to be covered, allowing a homeowner to replace them as well as a house.
An insurance policy doesn’t typically cover the loss of a house due to floods or earthquakes. To get the benefit of that coverage, separate insurance must be purchased. For those in flood-prone areas, the National Flood Insurance Program provides protection.
What homeowners insurance does typically cover is property: the home, items inside the home, and detached structures such as tool sheds or garages. If the worst happens and a home is lost, a policy can provide “loss of use” coverage, which helps to defray living expenses while rebuilding. Insurance policies also cover liability if a non-resident sustains an injury on the property and the homeowner is responsible.
Besides standard coverage, consumers can buy extra insurance to extend coverage. For instance, homeowners may need to add coverage for belongings since there are limits on how much a standard policy pays out for those.
Home insurance is a more complicated affair than warranty coverage, but in both cases, taking the time to become an expert in a particular homeowner’s needs and what coverage is available to fulfill those needs is a must. The time to do this is in advance of purchase or at least before a homeowner needs to make a claim.
The extent of the benefits gained from coverage depends on smart consumer decisions. Becoming an expert allows consumers to get the maximum benefit with the least amount of trouble should the need to use a home warranty or insurance arise. It also lets homeowners sleep better at night.
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Good article. I would also encourage home warranty buyers to read, read, read that fine print! Read it carefully! It can save you a lot of aggravation in the future.
No doubt about it Karen. Anyone purchasing a home warranty should always read the fine print!
Many home buyers, especially first time home buyers, don’t have a sense of how much coverage they would actually need for their property. Calling and getting quotes for a few places is a good place to start, but they may miss out on discounts they didn’t know they qualified for (i.e. alumni association group rates, discounts for bundling service, etc.). Working with an agent can help you define your needs for insurance and help you navigate the fine print.
Great post with a lot of valuable information. Home buyers need to know the difference and they need to know what’s required in their state and county. The warranty is just temp so having that insurance is a must.
Thanks for the compliments DeWayne! There are some differences that need to be explained between insurance and warranties.