Home Insurance and Home Warranties

It’s only apples and oranges, right?

Lately, we’ve been receiving a lot of calls with questions regarding coverage for repairs to home appliances or home systems.  Many insureds are not aware that their traditional homeowners policy does NOT cover the replacement cost or even repair of important systems in their home such as electrical, HVAC, kitchen appliances, hot water heaters or washers and dryers due to wear and tear.  To avoid confusion, disappointment or frustration, let’s briefly compare the difference between a standard home insurance policy and a home warranty.

BASICS:

First of all,  a Standard Home Insurance Policy will provide coverage to your home in the event damage is caused by any of these most commonly named perils; fire, smoke, lightning, windstorms, hail, explosion, vandalism, damage from a aircraft, car or vehicle, theft, or falling objects, weight of ice, snow or sleet, and water damage.  As for home systems, there are specific exclusions for mechanical system failures in a traditional homeowners policy unless damage is caused by a named peril listed above.  An endorsement known as Equipment Breakdown coverage can help fill that gap. This endorsement can be added to a homeowner’s policy, but keep in mind coverage is applicable to mechanical breakdowns that occur suddenly, not damage that occurs over time. That is considered wear & tear and is not covered. This is where a home warranty is important.

THE DIFFERENCE:

Moving on, we can see that home insurance provides coverage for damage to your home caused by specifically named disasters, then there are Home Warranties.  A home warranty is basically a servicing contract that provides repair or replacement of your home systems or appliances inside of your home that fail due to age or everyday wear and tear.  They are annual contracts that can be purchased by private companies off of the internet (usually $30/mo).  These contracts can be purchased at any time even if your home or appliances aren’t brand new.  Even though home warranties are not required, they can certainly be beneficial in rounding out your total home protection and save you $$$ in the long run. Most insurance agents aren’t contracted to sale these types of home warranties, but can be purchased off the internet or offered by your title company.

FYI:  Check with your agent to see if your homeowner’s policy offers Equipment Breakdown coverage which can be an affordable alternative or addition to a home warranty (under $80/yr).