Your home is one of the most expensive investments you will likely ever make, and it makes sense to protect that investment. Many of the systems, appliances, and equipment that make your home run would cost thousands of dollars to repair or replace. Some people mistakenly believe that homeowners insurance covers anything in a home that eventually wears out.
This is incorrect, and the worst time to find out about this is when a major system fails—like losing your furnace in the middle of winter, or the air conditioner giving out on the hottest day of the year.
You can purchase additional protection that can help to ease the sting of replacement bills, called a home warranty. And whether or not you are interested in a home warranty, it is important to know what your homeowners insurance does—and does not—cover.
What is a home warranty?
A home warranty is a purchased guarantee that certain equipment in your home is in good condition that comes with a commitment to repair or replace if it fails within a time period established by the warranty.
Home warranties are sometimes offered as an incentive during the home purchase process, particularly if the house is an existing home (rather than new construction). Home warranty details can vary between differing plans and companies, but typically they cover items such as a home’s heating and cooling systems, electrical wiring, plumbing, and major appliances like your home’s water heater.
What is homeowners insurance?
Homeowners insurance is a policy you purchase that protects your home’s structure and belongings from accidental damage. Homeowners insurance protects you from financial losses associated with repairs needed when your home is damaged by a “covered peril.” Covered perils are listed in your policy, and include things like storms, hail, tornadoes, or house fires.
Your homeowners insurance will pay for repairs to the structure of your home. If your roof, upper floor siding, and an upstairs window are damaged during a storm, your homeowners insurance policy is designed to help you pay to repair your home (minus your deductible). This type of structural damage can be expensive to repair—costs that, without insurance, you would be responsible for paying out of pocket.
Homeowners insurance also protects you from liability claims if someone is injured at your home. If you have a mortgage, your lender most likely requires you to carry homeowners insurance.
What are the differences between homeowners insurance and a home warranty?
Some of the key differences between homeowners insurance and a home warranty are the items that are covered. Homeowners insurance covers the structure of your home, but does not cover appliances and systems like your plumbing or HVAC equipment.
If your hot water heater suddenly breaks and causes water damage, your homeowners insurance will likely cover cleanup costs, assuming the water heater was in good condition and well-maintained. However, it will most likely not cover the cost of replacing the hot water heater. As an appliance, the hot water heater is an item that would likely be covered by a home warranty.
Home warranties cover the systems of your home and major appliances, even if these items fail as a result of normal wear and tear.
What is covered?
A home warranty typically covers your home’s major systems: heating and cooling, plumbing, and electrical. They also frequently will cover major appliances considered to be part of the home’s functional systems, like hot water heaters. Stoves are sometimes covered, but this can vary from one company to the next so make sure you read the details of your home warranty.
Smaller systems and appliances that are not covered by the basic terms of a home warranty can sometimes be covered for an additional cost. To determine if purchasing separate coverage might be worthwhile, consider the age and condition of your home’s equipment such as: automatic garage doors, freezers and refrigerators, the dishwasher, washer and dryer, hot tubs, sump pumps—anything that is aging and might be expensive to repair or replace.
A home warranty typically will include the labor costs involved in replacing covered systems. Read your warranty agreement closely, and note things such as limitations or exclusions, and many home warranties have a deductible associated with them, just like an insurance claim would. Sometimes a manufacturer warranty is the better option to pursue, and in fact some home warranties specifically exclude items that are covered under existing manufacturer warranties.
As with all agreements, it is important to understand the details of what is and is not covered under a home warranty agreement.
Home warranty vs Homeowners insurance
Side-by-side comparisons of what a home warranty covers vs homeowners insurance can be helpful in determining if a home warranty is right for you.
A home warranty should be considered if the age of key systems in your home is a concern, or if you would be unable to cover the out-of-pocket costs to replace something like the furnace or hot water heater.
Unlike homeowners insurance, a home warranty will replace items that have expired simply due to wear and tear. Homeowners insurance specifically excludes normal wear and tear damage and is limited to replacing items that fail due to sudden and accidental loss.
Homeowners insurance will pay to repair damage done to the structure of a home. Home warranties specifically exclude a home’s structural components and instead cover only systems within the home such as electrical and plumbing.
Home warranties sometimes carry service fees, and often have other limitations. Read the fine print before you purchase a home warranty.
Do I need a home warranty if I have homeowners insurance?
You might want to consider a home warranty if the home you are purchasing has a lot of systems that are nearing the end of their typical lifespans.
For instance, say you are interested in purchasing a home that was built 15 years ago. Your home inspection shows that most of the equipment, such as the furnace, A/C, and electric water heater have been well maintained and are in good working order.
However, the average life expectancy of a furnace is 15-20 years, an A/C unit is 15-20 years, and an electric water heater is 10-15 years. Even if these items have had meticulous upkeep, they are all nearing the end of their expected life spans. Purchasing a home warranty may give you peace of mind to know that if one (or more) of these items fail soon after you’ve purchased the house, you wouldn’t be hit with huge replacement costs right away.
It’s important to consider your financial situation. If you couldn’t afford to replace these systems out of pocket from savings, a home warranty might make sense. These systems keep your home safe and comfortable, and if you have to take out a loan or put the replacement on a credit card, you’ll also be paying interest.
Where can I get a homeowners insurance quote?
Contact the professionals at Rate Insurance for a homeowners insurance quote. Their expertise will help you find the right policy for your needs, and they can answer any questions you might have on the differences between a homeowners insurance policy and a home warranty.
Disclaimer:
*Savings, if any, vary based on the consumer’s profile and other factors. Contact your insurance agent for more information. Restrictions apply.
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