Why would you need a home warranty if you have homeowners insurance?
by Matt Hermes
on Tuesday, April 28th, 2020 at 10:33am.
The most common mistake homeowners make is believing that their homeowners insurance is all inclusive. They think it will cover everything and anything that goes wrong in the home.
It isn’t and it won’t.
Let’s look at what a home warranty covers compared to what homeowners insurance covers. We’ll then look at why having both is the best way to protect your home.
What does a home warranty cover?
Here are some of the most commonly covered systems and appliances under a Home Warranty Service Agreement.
Plumbing and electrical systems
Major appliances: washer/dryer, refrigerator, dishwasher, oven range, disposal
A Home Warranty Service Agreement from 2-10 Home Buyers Warranty (2-10 HBW) is an annual service contract. It protects most of your home’s most crucial systems and appliances from routine wear and tear. Addressing breakdowns for these items can be costly and unaffordable for home buyers as they settle into home ownership. That’s where a home warranty can come in handy.
When a major system or appliance breaks down due to routine use, a homeowner with a 2-10 HBW home warranty can file a service request. Each different service request requires a service fee. This fee is typically less than $100. Then, a qualified service professional assesses and potentially addresses the problem.
If the problem falls under home warranty coverage, 2-10 HBW covers the cost to repair the problem or replace the system or appliance with something similar, per the terms of the Service Agreement.
What does homeowners insurance cover?
In short, homeowners insurance does the following.
Covers damage from severe weather, fire or theft
Provides liability coverage against an accidental injury or death on your property
Helps pay to repair your home or replace personal property caused by outside events
Requires a deductible on each claim
Homeowners insurance does NOT cover the following:
Systems (e.g., HVAC) and appliances (e.g., dishwasher) failures caused by routine use
Structural failures caused by soil movement
It’s important to note that homeowners who take out a mortgage typically must have homeowners insurance. While it isn’t a law, mortgage lenders require borrowers to obtain homeowners insurance as a prerequisite to receiving a loan to purchase a house.
Homeowners insurance protects your home against risks like damage from severe weather (e.g., hail, tornadoes), theft and liabilities from accidents that occur on your property (accidental injury or death). Some policies cover personal belongings as well. Every time you make a homeowners insurance claim, you pay a deductible, which often ranges from $500 to $1,000, for each claim.
Why have a home warranty and homeowners insurance?
While most homeowners insurance policies sound comprehensive, they have coverage limitations. Home warranties complement homeowners insurance, making protecting your home simple and economical, and more comprehensive.
For instance, if your HVAC system breaks down due to normal wear and tear, homeowners insurance will not repair or replace the unit. Without a home warranty, you’ll have to repair or replace it yourself entirely out of pocket. In the case of an HVAC system, that can cost $5,000 or more. With a home warranty, you could get the system repaired or replaced for a fraction of the cost.
It’s important to remember that 7 in 10 homes experience a major system or appliance breakdown in any given year. Also, 1 in 5 brand-new appliances break down within the first 4 years of ownership (often outside the manufacturer’s warranty). Without a home warranty, the burden is entirely on you to repair or replace it.
Alternatively, say a tornado hit your house and damaged your refrigerator. A home warranty would not cover your loss on the refrigerator. The damage did not occur as the result of routine use. You would need to file a claim with your homeowners insurance company.
Home ownership can be expensive. Home warranties can reduce unexpected expenses. Covering yourself with both homeowners insurance and a home warranty is one of the most prudent financial decisions you can make.