Monday, August 3, 2015 / by Bill Berning*
Buying a home is far from a simple affair – and that’s putting it lightly. However, is the debate surrounding home insurance and home warranties making this already complex point in your life even more confusing and frustrating? If this describes where you’re at currently with the home buying process, then take a moment to let some of the most respected voices from around the web help you figure out which choice best suits your needs.
Warranties and insurance are supposed to offer up protection and coverage for homeowners facing major property issues and concerns. Unfortunately, making the wrong choice on this front could put you and your family in a position that’s far from ideal should you ever need to call upon these safeguards.
At first glance, homeowners insurance and home warranty plans look like two sides of the same coin. While there’s definitely some merit to this statement, the truth of this matter is that each option covers some unique assets within your home. Without a clearly defined understanding of both selections guiding the way, sifting through these differences takes on an unnecessary – and often times unmanageable – level of difficulty.
Understanding Your Options
In an effort to get the conversation kicked off the right way, let’s dig into the basics of both home warranties and homeowners insurance. Starting with home warranties, Laura Bramble of the San Francisco Chronicle explains that these agreements cover major appliance and system repairs, as well as outright replacements in certain circumstances.
Usually, you’ll sign off on a home warranty before the closing of the home. From here, the specifics of the policy will dictate what’s covered, as well as what constitutes a “major appliance or system.” Heating and air systems, plumbing, electrical infrastructure, hot water heaters, dishwashers, stoves, and refrigerators are all prime candidates for a warranty arrangement.
On the other side of the discussion sits homeowners insurance. As Bramble goes on to explain, the key difference here comes in what’s covered and why it’s being covered in the first place. Essentially, while a home warranty covers repairs and breakdowns of major appliances, home insurance seeks to cover everything of value in the home from outside factors, including the structural portions of the home itself.
Wildfires, severe weather, theft, and vandalism all serve as the focus of homeowners insurance. Depending on your policy, even things like accidental slips and other medical considerations can fall under the umbrella of coverage for you and your home.
The Particulars of Homeowners Insurance
Obviously, the theme of coverage and protection remains constant across both homeowners insurance plans and home warranty agreements, but there are some key differences that are worth mentioning. For starters, the experts over at the American Home Shield blog explain that most of the time, you simply don’t have a choice when it comes to whether or not you carry homeowners insurance.
Lenders generally require that you own the rights to this type of policy before agreeing to a mortgage plan. From here, the policy undergoes a yearly renewal phase and helps guarantee that this investment on behalf of the bank or creditor – as well as your personal possessions – remains covered and protected.
As you look into your different homeowners insurance options, you’ll find that these plans break down into four major areas – the interior of your home, its exterior, personal property involved in a theft, and general liability that comes with accidents. Again, the policy can change based on your location, but the mandatory nature of the process and these major areas usually stay fairly consistent.
Fitting a Home Warranty into the Equation
Whereas home insurance is a requirement in most home purchasing agreements, picking up a warranty is entirely based upon your personal preferences. Unlike the “major event” nature of a homeowners insurance claim, connecting with your warranty provider is more about handling the negative effects of standard wear and tear.
Going a step further, the experts at the American Home Shield blog note that warranties can cover both new and preexisting appliances and vital systems. Once you’ve selected a plan that fits your needs, claims generally go through a licensed technician or expert who determines whether the breakdown or issue is covered by your plan.
In some cases, the seller of a home picks up the cost of a warranty as a way to entice buyers and sweeten the sale. While not exactly commonplace, it’s far from unheard of to negotiate this type of agreement into the details of the sales contract, if you so choose.
Is One Option Better Than the Other?
By now, you probably understand that there is no real answer to the question regarding which option is better – especially when you consider that you don’t really have a say in the matter when it comes to homeowners insurance. As the team over at Financial Web explains, the intricacies of your situation are what should guide you and your family toward or away from adding a warranty into the mixture.
For instance, if you’re stepping into a new home and you plan on keeping the appliances and other potentially covered assets for as long as possible, paying a monthly, quarterly, or even yearly warranty premium makes sense when compared to the cost of outright replacing these items. However, the very same policy might not hold as much appeal if you plan to eventually upgrade these systems and appliances anyways.
No matter what decision you come to on your own, it’s still a good idea to take a minute and sit down with your trusted real estate agent. Aside from offering up an industry-oriented and professional perspective, this expert can help guide you through negotiating home warranties into the buying price of a property, gauging the true value of these offerings in comparison to the assets in your prospective new home, and when it’s the right time to say, “no thank you” to warranties altogether.
Considering how confusing things can get when you start factoring in insurance, warranties, and all other manner of legal agreements in the equation, doesn’t it make sense to work with someone who understands the finer points of all the variables that go into securing your dream home?