Young Alfred

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Home Insurance vs Home Warranty: Know Your Home Protection Options

November 26, 2018

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 seperate 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)
Compactors 6
Dishwashers 9
Dryers 13
Washers 10
Freezers 11
Refridgerators 13
Boiler, Electric 13
Boiler, Gas

21

Furnace, Gas 18
Furnace, Electric

15

Furnace, Oil 20
Heat Pump 16
Oven, Electric

13

Oven, Gas 15
Microwave Ovens 9
Water Heaters 10

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

Yes

 

No

Homeowners Insurance

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

Home warranties, unlike homeowners policies are actually service contracts on the appliances and systems of your home. They cover sudden breakage and provide routine maintance 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 warranties are annual contracts, running roughly $350-$400 per year
  • If a claim is filed, the homeowner is subject to a service fee ($50-$75), which covers the cost of a visiting repair person.
  • A repair may not be covered if the damage is due to an incident covered by the underlying homeowners insurance policy or the damage was found to exist before the warranty was put into place.

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,
Young Alfred

 

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