Do You Need a Home Warranty If You Have Home Insurance?
People may find that they are offered home warranty coverage when they buy a new home. Although both home warranties and home insurance can cover emergency events, and each provides you with peace of mind, the two products have their differences.
Your home insurance policy is not a home warranty. Whether you are a first-time homebuyer or an experienced buyer moving into your second home or a new condo, you may want to learn about the advantages of a home warranty to help you decide if you should purchase one in addition to your home insurance.
What Is a Home Warranty?
A home warranty is a product that is meant to cover different aspects of your home and help finance any necessary repairs. A home warranty is like a service contract (and sometimes a replacement contract) on key items in your home.
If you have a home warranty, then you essentially have a service contract to help with costly repairs or, in some cases, replacements. This can be a huge help for first-time homeowners who haven't budgeted for appliance breakdowns. Instead of a large, lump-sum payment to replace a major appliance, the costs are split into monthly premiums and a deductible.
Manufacturer warranties are similar in concept, except they cover specific appliances or items for a specified term. Home warranties generally apply to multiple items in your home, though the details vary. You can choose basic home warranty coverage or opt for extensive coverage—it all depends on your needs, budget, and how much of a risk you think you might have. Here are some examples of coverage plans:
- Plans that cover appliances only
- Plans that cover the systems in your home, like HVAC
- Plans that cover appliances and systems
- Add-ons for swimming pools, whirlpools, saunas, spas, etc.
Home warranties are available for property owners of all kinds, so it doesn't matter whether you own a house or a condo. A home warranty may be a useful product for homeowners and condo owners alike.
Pros and Cons of a Home Warranty
Home warranties play an important role in protecting your home's appliances and protecting you financially. There are a few downsides to consider though, so make sure you're making a fully informed decision if you choose to buy a policy.
Provides peace of mind
Means fewer unanticipated repair costs
Offers set premiums and a known deductible for repair costs
Protects major appliances as they age, unlike homeowners insurance
Doesn't cover all appliances
Even covered appliances lose coverage when they aren't properly maintained
Requires you to pay premiums all year, even if you don't end up needing coverage
Won't cover damage from fire or other disasters (this is what insurance covers)
You may have to use the warranty company's network of contractors and service people
What Is the Best Home Warranty?
The best home warranty contract is one that best fits your needs. Home warranty programs offer various levels of coverage and conditions of coverage. They may cover big-ticket items like air conditioning systems, electrical wiring, or kitchen appliances.
To better identify your needs, it can help to fully understand how home warranties differ from home insurance policies. They both cover unexpected circumstances, but your homeowner policy may exclude things like regular wear and tear and mechanical breakdown. A home warranty is designed to cover things that are not normally covered by home insurance.
For example, if your dishwasher breaks down, or the air conditioning system fails, the actual replacement or repair of those items might not be covered by insurance. A warranty, on the other hand, might pay for repair or replacement.
What Is Covered By a Home Warranty?
Here are some examples of things that may be covered for servicing, replacement or malfunction in a home warranty program. Remember, every home warranty program is individually managed, so be sure and ask for the specifics of the program you are considering before you commit to the contract.
As a general reference, here are some examples of appliances and services covered by a good warranty:
- Electrical wiring and infrastructure
- Washers and dryers
- HVAC systems
- Contractor or repair services by plumbers, electricians, etc.
- Central vacuums
- Garbage disposals
- Ceiling fans
- Bathtubs with motors
- Jacuzzis, pools, and spas
Where to Acquire Home Warranty Coverage
Home warranties are offered by several entities. There are unique perks and drawbacks to each provider, so consider your situation and shop around before buying a warranty.
Home Insurance Companies
Although home warranty coverage is not a part of standard home insurance, your home insurance agent or broker may have some options for you. With the increasing popularity of home warranties, many home insurers are starting to offer package endorsements that can be added to the insurance policy for warranty features.
The advantage of using home policy endorsements to replicate home warranty coverage is that, should something happen, you will only have one point of contact for your coverage needs. This could save you a lot of time and trouble during an already difficult time.
New Home Builders
If you have bought a newly built home, then the builder may offer a basic home warranty. This may be limited to the electrical, plumbing, structure, and air conditioning systems. You may be able to get a more extensive coverage through a privately purchased home warranty contract.
Real Estate Agencies and Brokers
Some real estate agencies or brokers may offer a complimentary home warranty as part of the value-added service they offer when they sell you a home. In these cases, the warranty may only be for one year, or they may only include basic coverage.
If you are getting the warranty for free, ensure that you understand the terms. For example, it may only be free for a set timeframe, so you'll need to know how and when to cancel it to avoid making payments. You also need to understand what the warranty covers. When in doubt, you should ask for more information rather than assume the coverage is what you need.
Some mortgage lenders also offer a free home warranty as part of their value-added packages and services. You may see the option to opt-in or opt-out of the home warranty when you sign your mortgage documents.
A home seller may also choose to purchase a home warranty when they put their home on the market. This can be very advantageous for the seller or real estate agent who is trying to sell the home because it adds an extra level of security and confidence for the prospective buyers. This is why you may see a home being sold with a home warranty included in the deal.
Questions to Ask About a Home Warranty Before You Buy
When you're shopping around for warranties, it's important to ask questions to ensure you fully understand what's being offered. If you need some help figuring out exactly what to ask, here are some starter questions:
- Are there limits for each coverage?
- Are there certain parts of covered appliances that are excluded?
- Can certain conditions cause a covered appliance to become uncovered? Some plans exclude older appliances or appliances that aren't subject to regular upkeep and maintenance.
- Are there maximum amounts payable?
- What are the deductibles?
- What kind of service calls are covered?
- Is there a limit on how many service calls I can make?
- Is there a charge to have a professional come and assess whether something is covered or not? Some warranty plans charge service fees in addition to your deductible.
- Do you have to use the company's network of contractors and service people, or can you choose your own?
- What is the process to make a claim and how will you be paid?
- Is there a waiting period?
- How does the company interpret pre-existing conditions?
- What kinds of damages are excluded? Ask for examples to make sure you understand the range of coverage. Many situations can have tricky restrictions or limitations, especially with electrical and plumbing.
Do Home Warranties Have Deductibles?
Home warranties do have deductibles. As with insurance deductibles, you can use the deductible to save money on your home insurance. For example, you can choose to take a higher deductible on your home warranty service contract to pay a lower annual fee. If you're considering this strategy, ensure you can actually afford to pay the higher deductible if the need arises.
Perhaps the best way to understand the benefits of a home warranty is to consider a couple of examples.
How a Home Warranty Can Work With Home Insurance
Imagine that your dishwasher breaks down. Water leaks all over the floor and through the ceiling of your basement, soaking the walls, damaging furniture, and warping floors. Everything has to be torn out and replaced.
Your home insurance may have coverage for the water damage, but as for the cause of the damage—the dishwasher—it will not cover replacement costs. However, your home warranty might cover this, and your home insurance policy could cover the rest of the mess.
Home Warranties May Pay When Home Insurance Won't
Imagine you have a home inspection and reconstruction cost evaluation done by your home insurance company. The company discovers that a flickering light might mean the wiring needs work. Your home insurance tells you it is a potential fire hazard, and the insurance company asks you to do repairs to keep your insurance policy in force. Since there has been no accident, no sudden damage, nor any accidental damage, the home insurance policy will not pay for repairs or regular maintenance.
After you get off the phone with your insurance company, you contact your home warranty company. It sends a professional to take a look at the situation because you took a good servicing contract with many add-ons and coverage for the electrical wiring. The electrician identifies the source of the problem and what needs to be done. Your warranty company covers the cost of the necessary repairs, allowing you to keep your insurance policy without dipping into your pocket.
The Bottom Line
Home warranties and home insurance policies are similar products, but there are differences. Homeowners can certainly find it beneficial to maintain both an insurance policy and a warranty. However, like any insurance or warranty product, there are a lot of variables. It's hard to definitively say whether a homeowner should or shouldn't own both products without knowing all the details of that person's situation.