Most lenders will require a borrower to purchase a homeowners insurance policy to protect their home. A buyer may wonder, then, why it is prudent to purchase a home warranty in addition. What is covered under the home warranty that is not covered under homeowners insurance?
Homeowners insurance protects against loss caused by a set of listed perils, typically including natural disasters (hurricanes, tornadoes, storms) and other acts of God, fire, theft, vandalism, and the injury of others on your property. Typically the home’s exterior and interior are covered, as well as personal property therein.
A home warranty, on the other hand, covers essential appliances and systems within your home. A contractor, chosen by the home warranty company, will repair or replace an item if something breaks. Contracts are typically 12 months, and renewable annually at the option of the homeowner. The annual fee often starts at $400 with a service fee of about $100-150; there are more expensive plans available which provide greater coverage and lower service fees.
What is the essential difference? Homeowners insurance is meant to provide protection against a homeowner’s personal property and structure to the house, while a home warranty covers mechanical or plumbing equipment that needs to be repaired or replaced. For example, let’s say a pipe bursts in your home. Your home warranty may cover the cost of repairing the burst pipe but not the damage caused by the leak. If the damage was major, your homeowners insurance may cover the damage caused by the leak.
Though home warranties have several benefits including coverage for defective appliances, a streamlined process for service, and perhaps cheaper fees compared with replacing or repairing an appliance yourself, there are several drawbacks as well. First, there are coverage limits which may require you to pay a portion of the bill. Second, a warranty company may deny coverage for a replacement or repair if there was a pre-existing condition or if the appliance was not properly installed. Often warranty companies will exclude coverage for subjective technicalities. Third, the home warranty company may have a limited network of service professionals, rendering it more likely you will receive substandard repairs.
To determine whether a home warranty is right for you:
- Review the contract terms
- Research a reputable, reliable home warranty company
- Consult with your home inspector, to learn about the age and condition of your home appliances.
For further questions about the difference between a homeowners insurance policy and home warranty, contact a Highland Title representative at 703-723-3300.