Do You Need a Home Warranty If You Have Home Insurance?
It is more and more common for people to be offered home warranty coverage when they buy a new home. Although both home warranties and home insurance can provide you with coverage when an emergency comes up, and the two are very different, they can both provide you with peace of mind.
Your home insurance policy is not a home warranty, Whether you are a first time home buyer, moving into your second or third home, a new condo or even you are selling your home, 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?
The home warranty is a product that is meant to cover different aspects of your home and help you out financially if you need to make repairs. A home warranty is like a service and sometimes replacement contract on key items in your home.
Basically, if you have a home warranty on your home, then you have a service contract to help if you need to do costly repairs or in some cases, if you have to replace contract specified items in your home. This can be a huge help for first-time homeowners who haven't budgeted for appliance break-downs because the costs are split into monthly, set premiums and a deductible instead of a large, lump-sum cost that comes up out of the blue when an appliance breaks down.
Manufacturers warranties are similar in concept, except they cover specific appliances or items for a specified term, the home warranty applies to a selection of multiple items in your home depending on your contract.
For example, some warranties will cover everything from HVAC systems, plumbing, fancy appliances, to equipment and their motors, depending on coverage options. You can choose from very basic home warranty coverage to very extensive coverage depending on your needs, budget and how much of a risk you think you might have.
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
Works well for first-time homeowners who are inexperienced with appliance break-downs
Protects major appliances as they age, unlike homeowners insurance
Doesn't cover everything
Doesn't cover appliances that weren't properly maintained
Requires you to pay premiums all year, and you may not end up using it (like insurance)
Won't cover damage from fire or other disasters (this is what homeowners insurance covers)
What Is the Best Home Warranty?
Each home warranty program offers various levels of coverage and conditions of coverage. Home warranty programs may cover big-ticket items like air conditioning systems, electrical wiring or even appliances. We will review some of the features below, but there is no way to say one home warranty is the best.
The best home warranty contract would be the one that offers you the protection you need for your home. Before we review some of the features of home warranties and how to find the best one for your circumstance, let's clarify how a home warranty is different than your basic home insurance policy coverage.
What Is the Difference Between a Home Warranty and Home Insurance?
Home warranties and home insurance both cover unexpected circumstances. The difference is that in your homeowner policy there are exclusions about regular wear and tear and mechanical breakdown. If your dishwasher breaks down, or the air conditioning system fails, the actual replacement of those items or repair would not be covered although resulting damage may be covered in a claim, for example, if there was water damage.
A home warranty is designed to cover numerous things that are not normally covered by home insurance which is what makes the product interesting to many homebuyers.
Can You Get a Home Warranty for a Condo?
Yes, home warranties are for property owners so whether you have a condo or a house, you still have a use for a home warranty. For example, if your home warranty covers your dishwasher, or air conditioning or plumbing, you are still just as responsible for these items when you own a condo, as you would be in a home. A home warranty may be a very useful item for homeowners and condo owners alike.
Can You Buy Home Warranty Coverage From Your Home Insurance Company?
Although home warranty coverage is not a part of your 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.
Make sure you ask your home insurance company if they have an endorsement they can add that would provide you with the kind of coverage you are looking for before buying it elsewhere. Then you can use the list of commonly covered items below to compare where you will have the most protection for the best price.
Should You Buy Your Home Warranty and Home Insurance From the Same Place?
The advantage of taking a home warranty as an endorsement to a home policy, or through the same agent or broker, is that if you have one emergency that requires coverage from your home insurance and home warranty you will only have to deal with one place and possibly one claim. This could save you a lot of time and trouble.
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 purchasing before you commit to the contract, these are just examples of what may be covered by different plans to help you shop for a good warranty:
- Electrical wiring and infrastructure
- Appliances like refrigerators, washers, dryers, stoves, and dishwashers
- HVAC systems
- contractor or repair services by professionals like plumbers and electricians
- central vacuums
- garbage disposals
- ceiling fans
- bathtubs with motors
- jacuzzis, pools, and spas
What Are the Different Options When Choosing a Home Warranty
You may have several features available in home warranty plans, make sure you ask for all the options then decide which level of service contract you will need. Here are some examples:
- Plans that cover appliances only
- Plans that cover the systems in your home, like the central vacuum, HVAC
- Plans that cover appliances and systems
- Add-ons for appliance or systems that can include swimming pools, whirlpools, saunas, spas, etc.
Questions to Ask About a Home Warranty Before You Buy
- Are there limits for each coverage. Are there certain parts of covered appliances that are excluded? 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?
- Is there a charge to have a professional come and assess whether something is covered or not? There may be service fees charged in addition to your deductible.
- Do you have to use their network of contractors and service people, or can you choose your own?
- What is the process to make a claim? How will you be paid?
- Is there a waiting period?
- What kinds of damage are excluded? Ask for examples to make sure you understand the range of coverage. Many situations can be tricky and have restrictions or limitations, in particular with electrical and plumbing, how they interpret pre-existing conditions will be important.
Beware that each plan specifies details of what kind of service they are willing to provide if you get repairs, replacements, etc.
You also want to find out if the warranty is limited by the age of the appliance, some warranties may specify that they only cover appliances 10 years and under, for example. Some plans exclude refrigerators.
It is important to ask as many questions regarding how to make a claim and what to expect before your purchase decision. If you are trying to compare plans, don't be shy to ask how the plan you are looking at compares to another. Sometimes vendors know their competitors and should be able to shed some light as to why their plan is best.
Can You Get a Home Warranty for Free?
Home warranties may be included as a perk when you buy a new home. 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 the term of one year, and may also only include basic coverage.
If you have bought a newly built home, then the builder may offer a basic home warranty because it is a new construction. This may be limited to the electrical, plumbing, structure, and air conditioning system. You may be able to get a more extensive coverage through a privately purchased home warranty contract.
Some mortgage lenders also offer a free home warranty as part of their value added package and services. You may see the option to opt in or out of the home warranty when you sign your mortgage documents.
If you are getting the warranty for free, just make sure that you understand what you need to do if you want to cancel it after the free term, and compare what is covered with the various types of home warranty options we discussed above. If you want a better home warranty package, then you should ask to have more information rather than assume it is what you need.
Buying a Home Warranty When You Are Selling Your Home
In the same way, a real estate agency or broker may offer you a home warranty when you buy a new home; the 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 the 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.
Do Home Warranties Have Deductibles?
Home warranties do have deductibles. In the same way, you can use the deductible to save money on your home insurance, you can choose to take a higher deductible on your home warranty service contract in order to pay a lower annual fee.
Example of a Claim: Home Warranty vs. Home Insurance
Your dishwasher breaks down leaking water all over the floor and through the ceiling of your basement soaking the walls and damaging furniture and floors. Everything has to be torn out and replaced. Your home insurance may have coverage for the water damage, but will not cover the replacement of the cause of the damage which is the dishwasher. Imagine if the cause of damaged is a worn down part of the appliance, and requires replacing parts in the dishwasher. Your home warranty might cover this, and your home insurance policy could cover the rest of the mess.
Example of Home Warranty Paying Where Home Insurance Will Not
You have a home inspection and reconstruction cost evaluation by your home insurance company, and they discover 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 or sudden or accidental damage, the home insurance policy will not pay for repairs or regular maintenance.
You contact your home warranty company, and they send 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, they identify the source of the problem and what needs to be done and cover the necessary repairs.