What’s The Difference Between A Home Warranty and Homeowners Insurance?
When you buy a home, inevitably something will break or need repairs, even if you do a home inspection. So when you’re getting ready to go to settlement, you’ll be faced with a few questions: do you want a home warranty and how much coverage should I get under my homeowners insurance policy? Do I need both? So let’s get down to the basics to help you learn more about your choices:
Homeowners Insurance Basics
There are separate policies when you’re buying a home, townhouse, or condo, but if you have a mortgage, it’s going to be required by your lender that you obtain insurance. Normally, I recommend bundling your insurance with whoever does your car insurance (sometimes they can give you discounts for having more than 1 policy).
Condo Insurance: Required to insure your personal property and any parts of your unit that aren’t covered by your condo association’s insurance policy. Your association could have one of three policies: a policy that insures only the primary building and common areas; a policy that insures your building and any items in your unit other than personal property; a policy that insures the building, your unit, and any fixtures or improvements you make to your unit. In other words, a condo insurance policy will cover the interior of your 4 walls and all of your “stuff.”
Homeowners Insurance: A policy that covers at least equal to the estimated replacement cost of your house.Determining your home’s estimated replacement cost is important because this will ultimately determine which policy options are available to you. Since it is impossible to predict today what the exact cost will be to replace your home in future, it’s important to have enough coverage to account for unforeseen circumstances. In other words, if your house burns down, how much will you need to rebuild and replace.
Home Warranty Basics
A home warranty is a service contract that covers the repair or replacement of the most frequently occurring breakdowns of home systems and appliances. This policy is an annual, OPTIONAL policy. There are several types of warranties, but the basic plan will offer you core coverage. You’ll have an independently insured contractor who handles any repair requests (you don’t have to deal with finding a contractor, plumber, electrician, etc. since they have their own list of “approved vendors”.) There’s usually a Trade Call Fee (aka deductible) you’ll pay before the warranty kicks in for coverage. Well known Warranty companies include Old Republic, American Home Shield, First American Home Buyers Protection Corporation.
Who pays for insurance and warranties? The purchaser pays for your own insurance policies. However, as part of our sales contract, the warranty is a negotiable item. The seller can pay for one as part of the agreement, or the purchaser can pay for their own.
As a seller, should I provide a Home Warranty? It’s not a bad idea to get one when your home is on the market, just in case something breaks during showings or something comes up on the purchaser’s home inspection. You can also market that a home warranty conveys with the property at the time of purchase.