REAL ESTATE TIPS...Understanding Home Warranty Vs. Home Insurance

by Jacklyn Renz

The home buying process can be an overwhelming one. At the end of the day, the right thing to do is to protect what is most likely your biggest investment. This is where home insurance and home warranties come in. These two items accomplish similar goals, but in varied ways.

Home Warranty Defined

A home warranty is something that either is or isn’t included in the purchase of your home. Often times, these warranties cover the major systems of the home such as plumbing, heating, and electrical systems. They also cover major appliances like the oven, stove, exhaust fans, garbage disposal, and refrigerator, if one is included. These are all things that aren’t typically covered in a normal home insurance policy, thus the appeal to buyers.

Benefits

The warranty, often paid for by the seller, may benefit both seller and buyer. The seller may be able to quicken the sell of a home by offering a “guarantee” of sorts that the major systems in the home will continue to work or will be repaired if they fail. This potentially protects the seller from any legal action that could happen if a system malfunctions, especially within the first few months after purchase. For the buyer, the warranty offers peace of mind, especially if the appliances and major systems of the home are older and no longer covered under manufacturer warranties.

Downsides to a Warranty

The biggest downfall of a home warranty is that the buyer will be required to use the contractor that the warranty company has hired. This means that the buyer cannot shop around for high quality work or check out reviews. The repair person fixing something as major as the plumbing of the home is someone selected by a company instead of you. There is also a service fee associated with each and every warranty visit.

Home Insurance Defined

In times of catastrophe, homeowner’s insurance is the key to getting your home life back on track. Home insurance is often required by mortgage lenders before the home buying process is even completed. Differing from a home warranty, home insurance is a policy, paid for monthly by the buyer, that protects the home and some of the possessions within the home.

What it Covers

Insurance protects your investment in a way that a warranty doesn’t: it provides the funds needed to replace and rebuild your entire house and some of the things within it if the need ever arises. Normally items like jewelry or computers aren’t covered; purchase separate insurance for these if need be. Many times a basic insurance package, referred to as an HO-2 policy, includes protection against fire, vandalism, theft, tornadoes, windstorm, hail, damage caused by vehicles or aircrafts, smoke, volcanic eruptions, weight of ice or snow, and freezing pipes. Flood protection does not come included and must be purchased separately, especially in a flood zone. Besides the house itself, fences and storage buildings are also under the coverage, as well as medical expenses in case someone is injured on your property.

When it comes to home warranties and home insurance, both are good ideas, but only one is required. Don’t let the lack of a home warranty hold you back from a house you love, as long as a good home inspection has been conducted by a trusted inspector. We hope this helps in your basic understanding of the difference between home insurance and home warranties…and may you never need to use either one.