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Home Warranty Insurance vs. Homeowners Insurance

Many homeowners and prospective buyers and sellers often confuse home warranties with home insurance policies. The truth is that home warranties are, in essence, a microcosm of the larger homeowners’ insurance industry. Whereas homeowners’ insurance typically covers the general layout of a home, its structure and its contents, in the event that a “peril” takes place, home warranties generally cover for the “wear and tear” of all major home appliances and systems. In essence, homeowners’ insurance will protect you against a volcanic explosion, but the occasional failure of your air conditioning units will only be externally addressed if you have arranged a home warranty, as well.

Furthermore, homeowners’ insurance policies typically accompany the purchase of any home, since banks are unwilling to lend mortgages unless they are secured by the attending properties. Home warranties, on the other hand, are completely optional policies, and they are typically procured when one’s home begins to age. At that point, appliances tend to behave unexpectedly and fickly, and homeowners’ fears for the impending failures of their appliances generally propel them to acquire a policy. In other cases, homeowners will establish a policy simply because they want equanimity, piece of mind that, in the event that something breaks down, they need not unnerve themselves with the task of fixing something or finding another to do the job. Nowadays, home warranty plans have become more of a necessity than ever, as prices for repairs and replacements continue to rise. The home warranty now seems like the most fiscally practical approach to surviving in today’s dynamic economy.

A commonality between both homeowners’ insurances and home warranties lies in the fact that both supply coverage after assessing numerous factors. For example, both homeowners’ insurance companies and home warranty companies will assess the conditions of the home, its contents, and the major appliances and systems before issuing coverage. In the insurance industry, general location may also be taken into account. Thus, with insurance policies, for example, companies may generally charge cheaper premiums to those living in close proximity to a firehouse; a commensurately larger premium to those living by the shore. With home warranty insurance, providers generally factor in the age of one’s home to gage its state, and typically conduct a routine inspection or observe a thirty day grace period between payment and the policy’s effective date. Few companies account for location when selling home warranty plans; most will simply consider the condition of the home before offering coverage.

Another distinction between home warranties and home insurance relates to the rates ordinarily applied to their respective deductibles or premiums. Whereas deductibles may vary in the insurance industry depending on the claim, home warranty recipients normally pay a “flat” deductible, or service-call fee (as it is known in the industry), any time that a repair or replacement is conducted on their premises. These deductibles generally range from $60-100, while warranty premiums are $300-500 on average. To put matters succinctly, the home insurance business operates in a slightly more complex manner.

Generally, however, home insurances cover the home, its contents, and resident possessions, in the event of particular “perils,” whereas home warranties cover all major home systems and appliances (plumbing, electrical, heating, A/C, etc.) in the event of any routine system failures.