Everything Homeowners Need to Know About Home Warranties

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Homeowners typically confuse the meaning of the two terms home insurance, and home warranty. The first thing that homeowners need to understand about home warranties is that it is not the same product as an insurance policy that provides coverage against the loss of your dwelling and its contents.

A Home Warranty isn’t Insurance

Homeowners insurance is a type of property insurance. It is designed to protect you financially should you suffer damage to, or a complete loss of, your home due to a sudden, unexpected event, such as theft, or a fire.

Without insurance, the homeowner would be responsible for the entire cost of their home, including their possessions within the home, should a catastrophic event occur. This is why so many lenders require homeowners to carry property insurance on their homes in order to qualify for a mortgage.

Home Warranties are Service Contracts

A home warranty is not insurance, although it is designed to provide financial protection and peace of mind to homeowners, as is property insurance. A home warranty is a type of service contract, or plan, that helps homeowners be able to better afford the cost to make repairs to certain parts of their home.

For example, a home’s major appliances, and built-in systems, such as the home’s roof, plumbing, electrical wiring, and HVAC suffer wear and tear over time. At some point, one or more components may fail, making an expensive repair or replacement necessary.

Depending on the specific terms of your home warranty, the cost to repair or replace part, or all, of these systems will be covered by the service plan. This means that the homeowner doesn’t have to come up with all the money up front, and out of their own pocket, to repair or replace the item.

Additional Benefits of a Home Warranty

Many home warranties offer in-home service which means that the homeowner doesn’t have to stress about finding a qualified technician to service a faulty appliance or other covered item. When something malfunctions or breaks, they simply contact the company that issued the warranty.

The provider of the service plan takes care of contacting a technician. Once the repair or replacement is complete, the homeowner is typically only responsible for paying any remaining deductible.

Having a home warranty can make it easier to sell the property should you choose to do so. Many buyers are concerned about maintenance and unexpected repairs. A home warranty provides the expectation that the home will be easy to maintain over time.

Most Home Warranties Can be Purchased at Any Time

A home warranty isn’t usually a requirement to secure a mortgage. Many times, they are included with the sale of the home. When this occurs, it’s typically included in the closing costs. The fee is frequently the responsibility of the buyer, although it can be assigned to the seller or realtor in the sale contract.

Many warranty providers will sell a service plan to homeowners at any time, not just when the home is bought or sold. Most providers don’t require an inspection before issuing the warranty, but in-home systems and major appliance must be in good condition and working at the time the policy is issued in order to be covered.

In addition to purchasing the initial service plan, most home warranties allow the homeowner to renew their coverage as long as it hasn’t lapsed.

Warranties are not Without Limitations

It’s important to keep in mind that having a home warranty doesn’t mean that a homeowner will not have to pay any costs. In addition to paying an annual fee for the service, most home warranties come with deductible amounts and limits on the coverage.

For example, warranties often include a limit on the total amount of service that will be provided, and will not cover pre-existing conditions. There may be other exclusions that limit coverage.

Deductibles are Standard Practice

Homeowners might be asked to pay a certain portion of the cost to repair or replace an item as a deductible. Deductibles can be a percentage of the total cost, or, a flat fee. For example, your home warranty might have a deductible of $100 before replacement coverage on appliances kicks in.

Warranty plans often contain additional types of limitations and conditions. For example, in-home service might only be offered on the home’s plumbing and electrical systems. Some appliance, such as HDTVs, might require the homeowner to deliver the item to a specific factory location for warranty service and repair.

Understand Terms Before Comparing Prices

Before agreeing to purchase a home warranty, it is always a good idea to take the time to read through all the policy documents. It’s especially important to take note of the fine print.

Homeowners should make certain that they understand all the terms and conditions and know what will, and will not, be covered, and then compare terms and prices from multiple service providers, before choosing the home warranty that’s best for them.

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