What is a home warranty?
So you’ve just bought a new home.
Congratulations! There are so many hurdles you’ve had to overcome to get to this point: standing on the threshold of your new home, ready and waiting to check out everything that’s yours.
Maybe to furnish the new home you bought lots of great, shiny appliances or brand new furniture. And, let’s face it, it looks fantastic!
But what happens when your fridge stops running overnight? You double-check the manufacturer’s warranty and it has expired just like your milk.
As you go about buying insurance, setting up inspections, and getting your home ready for move-in day, taking the time to check out what a home warranty is and how it helps can save you from crying over spilled and spoiled milk later.
So while you’re planning all the different details of your new home adding in a home warranty will bring you peace of mind in the long run.
Home warranty vs. homeowner’s insurance
You’ve got a house. You’ve got the homeowner’s insurance. But does that cover everything?
Typically, homeowners insurance covers the structure of your home, your personal belongings, liability protection, and additional living expenses.
Structure of your home
Homeowners insurance covers the structure of your home in case of fire, hurricane, lightning, or any other disasters that could befall your dwelling place. The money you receive from a claim under this sector goes toward repairing or rebuilding your home after said disaster occurs.
This homeowner’s policy does not cover floods, hurricanes, or normal wear and tear on your home. For homes that are located in places where floods and hurricanes hit more frequently, you’d need to get a specific insurance policy for those natural disasters.
Nobody wants to think about their things being stolen or destroyed but it does happen!
Homeowners insurance covers the value of your furniture, clothes, and other personal items in the event of a fire, hurricane, or theft. More expensive items like jewelry and art often have a price limit for insurance in a typical policy. If more coverage is needed, you’d want to take these items and have them appraised to know their specific value and get a policy that covers them adequately.
You’ve got great new neighbors but your kids just smacked a baseball through their living room window. Shattered beyond repair, they present you with a bill. Rather than pay it out of pocket, your homeowner’s liability protection has it covered!
Liability protection covers bodily injury or property damage that anyone in your family, including pets, causes to other people or properties. A typical liability protection policy also covers “no-fault” medical coverage for anyone who might be injured in your home. This allows them to simply submit medical bills to your insurance company and receive compensation.
Additional living expenses
Heaven forbid your home is destroyed in a hurricane. Additional living expenses covered by your homeowner’s insurance pays for any hotel bills, meals, and extra costs associated with not being able to be in your home.
A home warranty differs slightly from homeowners’ insurance in a variety of ways. First off it does not cover the structure of your home in the event of a natural disaster. It does however cover critical systems and appliances in good condition within your home.
This is the heart and soul of your home.
Things like your water heater, furnace, and other systems that govern your home are all covered under a home warranty and not under homeowner’s insurance. These can all be claimed when regular wear and tear happens to the systems rather than just a large disaster.
Those sweet, shiny new appliances all lined up in your new house just waiting to be used aren’t covered in your homeowner’s insurance.
A home warranty, however, will do the trick!
You may carry a manufacturer’s warranty on some new appliances but the typical length for those types of warranties is a year or so. A home warranty goes beyond what a manufacturer’s warranty timeline would be and covers your new appliances for much longer.
So what do you need for your home and what can you put off to maybe save some time, effort, or a couple of bucks?
Homeowners insurance is required by most banks before they even issue a mortgage loan to a buyer. This helps keep the payments affordable and stable even if a catastrophe or disaster happens to the home.
A home warranty is optional.
Unlike insurance, a home warranty is much more flexible and is even able to be transferred from one owner to the next. Many home buyers and sellers use a home warranty as a bargaining chip when negotiating terms and conditions.
When should I purchase a home warranty?
Now for the tricky part: timing.
One of the best parts of purchasing a home warranty is that the timing just isn’t that tricky! You can purchase a home warranty at any point with any home for that added set of coverage. One rule of thumb if you want a home warranty on a newly purchased house, buy it within 30 days of closing on your home.
Older homes and younger homes
When you purchase a pre-owned home, you are responsible for what the previous homeowners did and did not repair on your new pad. Before you choose to purchase any home, make sure to have a home inspection done and any repairs finalized before signing the paperwork.
Older homes tend to be at the end of their critical system life spans. Having a home warranty before finalizing a purchase of an older home can give you the boost you need to repair and replace those systems when they inevitably falter and fail.
A new construction home typically carries a builder’s warranty on it that covers the new systems and new appliances. An additional home warranty carries past this initial builder’s warranty to cover your critical systems and new appliances. The chance that any of them may fail is always present and having a home warranty that is sure to cover them should give you solid peace of mind.
Selling vs. buying
Whether you’re buying or selling a home, a home warranty gives you a distinct edge over the competition.
When you set out to sell your home you want to put your best foot forward and wow your audience. As humble as they may seem, home warranties tend to wow audiences!
Typically homes that come with warranties already attached sell faster and for several thousand dollars more, than those without a warranty. The idea of having the systems and appliances already covered tends to attract buyers and pushes them toward finalizing the sale.
As you set out to look at homes and question if they’re covered by home warranties, make sure to double-check what other types of insurance they carry as well and if the previous owner is willing to transfer the warranty to you when you sign.
As you’re planning your next move, whether, into an older home or a new construction home, it’s always a good idea to weigh the pros and cons of whether to add a home warranty to your budget.
The typical home warranty cost is between $400 and $600 per year. Again these types of warranties cover your critical systems and appliances against normal wear and tear and breakdown.
Homeowners insurance covers your home and structures against major events and destruction.
Home repair fund
Rather than purchasing a home warranty, you can take the money you would spend and put it into an account that would be saved for those inevitable repairs.
As most normal wear and tear, breakdowns can typically be covered by the amount of money you would be setting aside, having a home repair fund would allow you to pay for your repairs out of pocket. This eliminates the risk of your claim being turned down because of a loophole in the home warranty.
Rely on other warranties
When you purchase a new home, the appliances and critical systems are typically still covered by the manufacturer’s warranty and the builder’s warranty. Should something fail, you could use that coverage to replace the damaged systems or appliances.
Evaluate your own needs
As you look to purchase a home make sure to take the time to evaluate your own needs and your warranty coverage.
Am I already covered?
When you’re looking at home warranties evaluate whether the coverage you already have, in other warranties or insurance, is sufficient for what you’re trying to accomplish. If you’re planning to have an emergency repair fund, you may not need a home warranty. If you like the terms of your proposed home warranty and are bad at setting aside the money for a home repair fund, adding one to your coverage may be the right move.
What’s the cost per year?
The cost of a warranty varies depending on the type of home, where it’s located, and the systems and appliances it will be covering. Check with local warranty representatives to determine the exact cost for your home and the breakdown per year.
What exactly does my warranty cover?
Read the fine print.
The easiest way to get duped when you’re trying to enter a claim is by not reading the fine print before signing. Know exactly what it is that your warranty covers before signing on to the plan. That way when you go to turn in a claim you can rest assured that it will be approved.
Repair or replace
Some warranties may deep a repair for an item or system as too expensive and will offer to replace it instead. But be warned! Often they will give you only the depreciated value of the item and that would leave you with the extra cost coming from your pockets.
Is the sky the limit?
Most plans have a limit on what exactly the plan will payout. Make sure you know this upfront. Better to know now, than be faced with an expensive repair, believing the home warranty will cover it all and then being stuck with the cost.
Review, regroup, plan
When buying a home, you’re faced with an onslaught of new terminology, paperwork, and a myriad of opinions on the “right” way to do something. Making sure all of your new (or old) appliances and home systems are cared for and planned for is a crucial step for homeowners.
Take the time to review your current insurance plans and evaluate whether a home warranty is needed. During this same time, review the warranty to make sure it covers everything you need and desire in your home plan.
Having the added benefit of peace of mind when it comes to another level of coverage is often worth the cost that a home warranty would incur. Sit down and figure out if you’d like to have the coverage for the cost or just tuck the money you would use away in a home repair fund.
Above all else, as you purchase a home warranty, be sure to read the fine print. Knowing exactly what your warranty covers and what it will do for you, is key.