What is home warranty insurance?

Mon Jul 09 2018

Home warranty insurance is a service contract that covers damage to major household appliances and systems. It is not the same as homeowners insurance.

Home warranty insurance vs. home insurance

Home warranty insurance is a service contract that covers damage to major household appliances and systems, such as:

  • Air conditioning units
  • Ductwork
  • Furnace
  • Water heater
  • Kitchen appliances

Much like a manufacturer’s warranty, a home warranty pays to repair or replace a covered item when it malfunctions within a certain time frame, typically a year. These contracts cover damage from regular use and age, which is one reason homeowners find them so attractive, especially if they are new buyers or are purchasing an older home.

Another benefit for homeowners is the simplicity of a home warranty. When their dishwasher breaks down, they only have to make one phone call. The home warranty company takes care of the rest.

While a home warranty may be a good fit for your needs, it doesn’t replace the need for homeowners insurance.

Is home warranty insurance the same as home insurance?

No. A home warranty is not the same as a home insurance policy. Homeowners insurance primarily offers three types of protections:

  1. Property coverage for the physical structure. Standard policies usually include your home and other structures on your property, like a garage.
  2. Property coverage for the things inside the home. Imagine turning your home upside down and shaking it. Anything that falls out is your personal property and is typically covered by your homeowners insurance.
  3. Liability coverage. This protection can cover your legal responsibility to the people who visit your home. It kicks in when someone is injured at your house or when you damage someone’s property.

Your appliances are your personal property, and your home insurance can help pay to replace them when covered events damage them, like a fire or windstorm. However, it won’t cover their replacement when they simply won’t work or malfunction. For that, you’d need a home warranty.

Who needs home warranty insurance?

Home warranty insurance may not offer the same protections a homeowners policy does, but you may still want to investigate the option if you’re:

  • A first-time buyer with no home maintenance experience.
  • Buying an older house or a house with older appliances.

Chances are you won’t have to look far for a home warranty company, but pick a reputable one to avoid potential scams:

  • Research the company. Read reviews and look the company up on the Better Business Bureau or state’s department of insurance before you commit to a yearlong service agreement.
  • Read the warranty. Your plan can exclude certain components, require you to use certain repair companies, or deny payment for unusual wear and tear.
  • Check the company’s address. A P.O. box or other types of short-term rental space doesn’t necessarily mean a company isn’t reputable, but it can be a warning sign that it isn’t going to be around when trouble hits.

Customer reviews are also a useful way to assess a company’s credibility. Look them up on Yelp or Trustpilot to get an impression of fellow homeowners’ experiences.