Preparing for the Unknown: The Ultimate Guide to Insurance for Homeowners

When buyers close on homes, they often work on tight budgets for quite some time afterward. Many people wonder if a home warranty will protect them from high out-of-pocket costs, or if it will simply waste their hard-earned money. Before you purchase a home warranty, it’s important to understand what it covers and how it can help you.

Home Warranties: What Are They?

Home warranties, which are also known as home service contracts, are protection plans that cover the cost of replacement or repair of your home’s crucial appliances and systems when they break down or are damaged due to ordinary wear and tear. A plan from a home warranty company may cover:

·        Electrical systems

·        Plumbing

·        Major appliances such as washers, dryers, microwaves, and refrigerators

·        Garbage disposals

·        HVAC systems

·        Repair services provided by electricians and plumbers

Depending on your requirements, you may be able to buy additional coverage for things such as swimming pools, hot tubs, garage door openers, and much more.

Is a Home Warranty the Same as Homeowner’s Insurance?

The short answer is no. A home warranty is different from a homeowner’s insurance policy. While a homeowner’s policy protects the home and your belongings, a warranty covers appliances such as water heaters and furnaces. While a home insurance policy would cover losses associated with fire or theft, a home warranty would not.

The Basics of Home Warranty Plans

While most people who buy home warranties do so immediately before or after closing a sale, it’s possible to purchase such coverage at any time-;even if you’ve been living there for years. A home warranty is a service contract that typically lasts for a year or more, and it gives the homeowner the choice to renew or cancel when the term expires. For appliances and systems to be covered under a warranty, regular maintenance and documentation are required.

What Type of Coverage Is Available?

Home warranty or service plans differ in terms of coverage and price; a more expensive plan will likely offer more coverage. The least costly plans cover specific appliances, such as AC systems and washing machines. Other plans, which cost more, cover several appliances.

The costliest type of home service plan covers both major systems and appliances, such as a home’s HVAC and electrical components. As comprehensive as these plans are, though, they may not cover all systems and appliances. Check the contract for exclusions, such as additional refrigerators and outdoor hot tub or pool equipment. It may be possible to negotiate with your homeowner’s insurance company to cover these items.

What Makes Home Warranties Different

As mentioned above, the biggest difference between a warranty and an insurance policy is what is covered. Home warranties cover ordinary wear and tear to most of the systems and appliances inside a home, while insurance covers accidental damage to and loss of belongings due to storms, fire, theft, and other disasters. Furthermore, a homeowner’s insurance policy may shield you from liability if someone is injured while in your home.

Homeowner’s policies are typically mandatory if you’ve obtained a mortgage; the lender will probably require you to purchase coverage before closing the sale. By comparison, a home service plan is optional, and it can be renewed after a specific term.

Is a Home Warranty Necessary?

When considering a warranty, it’s best to evaluate the condition and age of your home’s systems and decide whether the coverage will add value. For instance, if your water heater is at the end of its useful life, a warranty may save you from high replacement costs. Ask and answer these questions before buying a plan.

·        Is warranty coverage affordable? While there is an upfront cost, it may help you save in the long term. If the plan is budget-friendly, it may be a good investment.

·        Are you buying your first home? Many new buyers purchase these plans during closing. It adds a bit to the monthly mortgage bill, but again, it brings long-term savings.

·        Do you plan to buy an old home? Buying a warranty when a home is about ten years old will help with future repair costs.

·        Are you selling the home? If you’re getting ready to put a home on the market, a warranty will help keep things running smoothly and it provides a strong selling point.

·        Are you a rental property owner? It may be possible to roll the cost of the plan into the monthly rental cost. A home warranty is a wise purchase if you have short-term tenants such as college students, or if you have multiple rental properties.

Where major home repairs are concerned, it’s never financially convenient. That’s why a good home warranty can be a real budget-saver.

The Advantages of Home Warranty Coverage

One of the biggest benefits of home service plans is that they cover a home’s appliances against sudden damage. If an appliance or system in your home fails, the warranty provider will send a licensed, qualified service technician to repair or replace the faulty item. For these reasons, home warranties make sense for those without the time or skill to fix things, and for those who don’t want to spend their downtime finding the right repair company or contractor.

The yearly warranty fee may seem steep to some, but it is relatively inexpensive compared to the cost of replacing or repairing a home appliance or system. Home warranties offer reassurance that defective components will be replaced or repaired, without costing thousands of dollars out of pocket.

The Drawbacks of Warranties

There aren’t many disadvantages to consider, but the main drawback is that home warranties do not cover everything. A claim may be denied if the home system or appliance wasn’t properly maintained, even if the part was covered by the warranty.

The definition of “properly maintained” isn’t clear, however, which may cause disputes between homeowners and warranty companies. These problems often arise when previous homeowners didn’t maintain their appliances and new buyers are left with the repair bills.

When requesting warranty service, you won’t have the option of choosing your own repair provider, as the home warranty company will make that decision. Like most other policies, home warranties have certain limits and exclusions to consider. For instance, a company may impose a $2000 limit on HVAC claims, and you’ll be responsible for costs exceeding that amount if your system needs repairs or replacement.

Many home appliances are covered by manufacturer’s warranties, which may eliminate the need for additional warranty coverage. However, the older a home is, the more susceptible it is to sudden malfunctions and failures. Here, a home warranty will offer protection even after the manufacturer’s warranty expires. Some warranty contracts do not differentiate between old and new homes as far as coverage costs are concerned.

How Much Does Home Warranty Coverage Cost?

Like other types of coverage, home warranties have annual premiums that are paid upfront or in monthly installments. The cost of such coverage typically starts at about $400 per year, depending on the provider, the extent of the coverage, and the size of the home to be covered.

If your home is less than 5000 square feet in size, a standard home warranty may provide adequate coverage. However, if the home exceeds the square footage limit, or if your property includes a guest home, coverage will cost more. Along with monthly or yearly premiums, home warranty companies also charge service call fees that must be paid with each request. In most instances, these service calls cost $60 to $125.

Coverage for Home Sellers

Some home warranty providers offer no-cost seller’s coverage during listing periods in the belief that the new buyer will elect to continue the policy. This complimentary coverage helps home sellers by protecting the structure and its contents while the property is on the market. Sometimes, sellers attempt to entice potential buyers by including the first year of warranty coverage in the home’s asking price.

Choose Your Provider Wisely

When considering the purchase of a home warranty, it’s important to choose the right company. Read each provider’s online reviews to learn how satisfied customers are with the service they receive. Does the warranty company offer quick turnaround times, and is phone or online support available? Is it hard to get things fixed quickly at night, on weekends, or during the holidays? It’s also important to ask about each company’s dispute resolution process. With the answers to these crucial questions, you’ll have everything needed to make an informed decision.

Warranty Transferability

In many instances, warranties are transferred to new owners upon the sale of a home. If you’re in the market for a new residence, ask if the remaining warranty coverage can be transferred at no charge. Home warranty coverage is a strong point that helps homes sell faster and command higher prices.

Even after a detailed home inspection, a buyer can gain peace of mind for the first year of living in a new home by purchasing a warranty. As previously mentioned, many home sellers include the coverage at no additional cost. After the free coverage ends, though, the cost of a year-long home warranty may be a worthwhile one.

Making the Right Decision

It’s an unfortunate fact that every mechanical component in a home, no matter how well it is maintained, will eventually fail. A home warranty may be a good way to avoid the cost of sudden repairs. Before purchasing a warranty, it’s important to read the contract’s fine print carefully. By doing so, you’ll get an idea of what is (and isn’t) covered, as well as any limits the warranty provider will impose on replacements and repairs. Then, weigh the warranty’s pros and cons, keeping your needs and budget in mind.

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