Home Warranty vs Home Insurance
What happens if your roof suddenly starts leaking into your family room? What if your dishwasher stops washing dishes for no reason? You call your home insurance company, right? Actually these are covered by TWO separate types of coverage.
Home insurance does not cover wear and tear of appliances which happens a decent amount. The useful life of some common home appliances:
|Appliance||Average Life (years)|
Given each home has at least 10 of these, you are probably looking at something going wrong every couple of years. This is where a home warranty steps in. How does a home warranty policy compare to a home insurance policy:
|Home Insurance||Home Warranty|
|Average Annual Cost||$1,100||$400|
|Average Deductible/Service Charge||$1,000||$75|
|Percentage of Homes with Coverage||97%||4%|
|Frequency of Claims||Once every 9 years||Failure Rates|
|Waiting Period before Coverage||0 days||30 days|
|Required with a Mortgage||
First of all, if you have a mortgage on your home, you HAVE to have a homeowners insurance policy. A homeowners insurance policy is quite comprehensive and covers your home in the event of a total loss as well as other scenarios including
Plus any add-ons you choose:
These policies are fantastic in the case that a huge catastrophic event occurs that would otherwise wipe you out financially. BUT, in the case that your dishwasher breaks down or cooling unit quits working, then a homeowners policy will be of no use. Here is what is NOT covered in your homeowners policy:
Since wear and tear is a common issue for all those home appliances, the home warranty product was born to help with maintenance.
Home warranties, unlike homeowners policies are actually service contracts on the appliances and systems of your home. They cover sudden breakage and provide routine maintenance to extend the useful age. The average homeowner pays $2,000 annually on maintenance services so it may make sense to transfer this cost to a home warranty policy (and maybe save some money):
Home warranty policies usually have a limit, just like homeowners insurance. They typically cover ~$20,000 in appliances. The warranty company will also determine when an appliance will be replaced or just repaired. Some consumers get upset when they want a brand new $6,000 heat pump when it is damaged instead of just getting a repair that makes it work again. You lose the freedom to choose: repair or replace when you sign up for that home warranty product.
Hope that helps!
At your service,