Why Home Warranties Aren’t Insurance

If you’ve just bought a new home or are in the process you may have heard home warranties mentioned a time or two. Until you buy a home you’ve likely never come across such a product. All too often people confuse home warranties with home insurance, but they are decidedly very different.

homewarrantiesHome Warranties Aren’t a Substitute for Home Insurance

A key indicator that home warranties aren’t a substitute for home insurance is the fact that your mortgage company will almost always require you to have home insurance whereas a home warranty is completely optional. Here’s why:

A home warranty doesn’t protect the structure of your house or your property, just certain equipment and systems within the home. If there is a flood, fire or break-in a home warranty won’t help you.

Here’s the home warranty basics:

  • You pay a one-time fee (typically $250-500) to establish the warranty.
  • If a covered item needs repair or replacement the home warranty company will send out a pro of their choice to fix the equipment.
  • You’ll have to pay a service fee for the fix – average fee is $50-75.

It’s a benefit if you have something major break down like the HVAC or have multiple items need repair within the term of the warranty. However, some components covered by the home warranty may already be covered by your home insurance. But unlike home insurance, with a home warranty you don’t have control over who the repairman is. The home warranty company will select someone from their pool of vendors.

Deciding Whether or Not to Get a Home Warranty

The home warranty can provide extra protection, but is it worth the cost? Look at what the warranty actually covers and ask yourself:

  • Are a number of the items already covered by your home insurance?
  • Is the equipment in your home new or on their last leg?
  • How likely are these things to break down within the term of the contract?
  • How comprehensive is the coverage? Are all the parts of a component covered or just a select few?

If the home seller is willing to pay for the home warranty by all means go ahead and get one. However, just be aware that you will have to pay for it after the first year if you want to keep it. Instead of a home warranty, you can always opt to increase the coverage on your homeowners insurance and ask about additional coverage like major appliance insurance.

Original Source: http://www.mybiginsurance.com/homeowners-insurance/home-warranties-arent-insurance

This entry was posted in Homeowners Insurance. Bookmark the permalink.