What are the documents needed when purchasing a new home? This is one of the greatest investments in life, so we have to make sure that the money being spent is secured considering that there are circumstances that we couldn’t avoid like natural disasters, fire, etc.
So what is a home warranty? What is home insurance? What differentiates the two? What is their coverage?
Which Is Which?
A home warranty is always offered when buying a new home. Although it is not required, it is a smart purchase to have as well as home insurance because both of them give the homeowner peace of mind. It offers different types of protection so knowing what the difference is will help you understand and decide if you are going to obtain both of them or if one of them is good enough for you.
A home warranty is a service contract that provides repair and replacement of your system components and home appliances caused by normal wear and tear.
Homeowners Insurance (HOI) pays for damages and losses caused by unexpected events such as fire and weather damage, but it won’t help if your washing machine breaks down.
Components of your HVAC, electrical and plumbing, kitchen appliances, central vacuums, garbage disposals, ceiling fans, and washer/dryer are typically covered under this warranty. You can also include larger systems like Jacuzzi, pool, or spa. Home warranties typically have 12-month contract terms and are not mandatory to obtain a mortgage.
So if a system or an appliance in a home breaks down, instead of calling a repair company they call their home warranty company. And all the homeowner has had to pay for is the service call fee and yearly premium.
Pros and Cons
Since HOI is required for obtaining a house, understand that there are cons to a home warranty. (1) That it doesn’t cover everything; (2) it doesn’t cover appliances that weren’t properly maintained; (3) there is a yearly payment required and you may end up not using it; and (4) it won’t cover damage from a fire or other disasters because that what an HOI covers.
The question is, since home insurance is a must-have for buying a home, does doing the same thing by obtaining a home warranty will be worth it? Do you have to get both?
First of all, you have to understand that both of them have a different offer. Home insurance is always required right after buying a house; a bank usually requires you to get one before issuing a mortgage on a home. Home insurance covers any accidental damage to your home and belongings due to theft, storms, fires, and some natural disasters.
The scope of insurance under the policy includes four primary areas: the (1) interior and (2) exterior of your home, (3) personal property in case of theft, loss, or damage, and (4) general liability that can arise when a person is injured while on your property.
Coverage Scenario for HOI
For instance, one of the rooms in your home is on fire. Homeowner’s insurance will pay for the damage caused by the fire. When it comes to fire damage, Insurance will also cover for belongings that were ruined. However, there are fire damages that home insurance may not cover such as starting a fire in your own home or an act of war. To understand better, it’s best to contact your local agent and learn about the risks that are excluded from the coverage. For safety precautions, it is best to have smoke detectors and fire extinguishers to help protect yourself from fire.
Coverage Scenario for HW
There are incidents that only service contracts like a home warranty can fix. This is where a homeowner’s insurance and home warranty can be tricky. For example, pipe leaks and floods your toilet. HOI will cover it but the repair and replacement of the toilet would not be covered. A homeowner will have to pay for it if they don’t have a home warranty. A home warranty will cover for a plumber to come and fix the plumbing system. But if the home floods because of a plumbing problem, a home warranty won’t cover the damage caused but home insurance will!
Confusing? Yeah, it pretty much is confusing.
Therefore here are all the things you need to know about home insurance and house warranty.
Home Insurance: The Most Basic Coverage
This is the most basic coverage of homeowners’ insurance. Dwelling protection helps cover the structure of the house such as the foundation, roof, walls, garage, and balconies.
Personal Property Coverage
This is protection for your personal belongings. If your possessions are damaged by qualified perils, then they will be covered by your home insurance. However, for expensive jewelry, furs, paintings, and other over-the-top collections, you must ask your insurance agent about an umbrella policy.
Liability coverage helps protect your visitors in case they got injured within your premises. Also, it not only shoulder the medical expenses of the injured but also the legal expenses if the case reaches court.
Home Warranty: All The Things You Must Know
The definition of a home warranty can be a little tricky. Hence, here is a broader and detailed explanation about it to remove the confusion about its differences with home insurance.
A home warranty is different from a “manufacturer warranty “ but they are quite similar in concept. It is because a manufacturer’s warranty only covers the repair or replacement of one product only within the given warranty period. While on the other hand, a home warranty generally applies to multiple items in your home. However, the coverage varies depending on what you choose, a basic home warranty, or extensive coverage. And that decision mostly depends on certain factors like how much is your budget, what you need, and the proneness of your house to perils.
One of the good things about the home warranty is that it is available for property owners of all kinds. Whether you are a house or condo owner, still you can have a home warranty. And since a home warranty’s contact generally lasts to 12 months, after that and you want to extend it, then you can ask for a renewal. The annual fee often starts at $400 and up. You can choose to have a basic plan or an extensive plan depending on your needs.
What Is Covered By a Home Warranty?
Generally, there is no such thing as a standard home warranty because it should be individually managed or tailored fit to your needs. We all know each homeowner have their things to consider in choosing a warranty, hence here are the general reference for coverage that you can check when shopping for a home warranty:
- HVAC System
- Electrical wiring
- Central Vacuums
- Appliances like a refrigerator, dishwasher, and stove
- Jacuzzi and pools
- Bathtub with motor
- Garbage Disposals
How to Get Home Warranty Coverage?
A home warranty is easy to avail of because it is offered by many. That being said, once you shop around it is wise that you look for the best one who can offer you exactly what you need.
Some insurance companies offer a home warranty. However, it is not usually included in standard home insurance. Therefore, if you want to add it to your coverage, you must talk to your insurance agent about it. Because nowadays, home warranties are starting to become more popular with many homeowners, this results in some home insurers offering package endorsements.
This endorsement is an option where you can add warranty features to your insurance policy. The good thing about having a home policy endorsement that is just the same as a home warranty added on your homeowners’ insurance is that, in case you need to file a claim, you just need to do it one time and deal with one company only instead of two. This can save you so much effort and will give you less stress to deal with.
Brokers and Real Estate
Most real estate agencies and brokers offer a free home warranty to attract buyers, especially if the house that they are selling is not a brand new house. And mind you, this strategy works most of the time. The catch here is, the home warranty only lasts for quite some time. That being said, you must always be vigilant in asking how long the warranty will only take effect. For example, it will only last for a year, ask them how can you cancel it after one year to avoid any charges. Moreover, you must know what the home warranty covers. Since it is just a part of a value-added service that they offer, usually it is just the basic coverage.
Other mortgage lenders also offer a free home warranty included in their value-added package. Their strategy is almost the same as real estate. You can see this option during the process of signing the documents, that is why you must discuss this or ask questions to your lender on what are the terms of the warranty.
New home builders usually offer a basic or standard home warranty as well. And when you say basic, this just mostly covers the structures, plumbing, electrical, and air conditioning system. So if you wish to have more coverage, you may consider the option to have extensive coverage which you can purchase privately.
Some home sellers who are selling their own house by themselves or with the help of a real estate agent also offer a home warranty to attract buyers. If you notice, most sellers and agents do this strategy to give the buyer extra security on buying the house. And of course, the same rule applies, always ask the duration of the warranty and the coverage to avoid any surprise charges.
Do Home Warranties Have Deductibles?
The answer is yes there is. You can use the deductibles to save more money on your home warranty. Let us set an example, if you want to have a lower annual fee, you should choose to have a higher deductible on your home warranty service contract. However, if you choose this option, you must be prepared for the consequences. Because if in case a claim happened, you will need to pay a higher deductible in a snap.
Why purchasing both is the best way?
Because homeowners need to protect the structure of the house, together with the system components and appliances. One cannot fix it without the other because it has different coverage for every structure and part of the home. They work in different ways but their goal is to protect every part of your home.
So, if you need anything from home insurance, home warranty, or anything else in between, just contact us today and we’ll get you straightened out. We’re the advantage you need to get you, your property, your family, or your business protected.