What is a home warranty?
A home warranty is an insurance for parts of the home. Not the home itself, but it covers the home systems and appliances. Technically, it is a residential service contract that covers the wear and tear of things in a home.
As we are all aware, appliances have a tendency to go wrong. When renting, this isn’t so much of a worry as it’s usually the landlord’s responsibility if the hot water goes off or the washing machine breaks down. But when you’re a homeowner and you own 20 + household appliances, you’re exposing yourself to the risk of multiple items breaking down in a short space of time. Not only this, but the cost of replacing or fixing a core system such as heating, home warranty insurance could limit your losses.
For a monthly fee, home warranties usually cover you for such breakdowns. There is usually a service fee the calling out a technician, as well as a deductible and limit to the claim. This is to ensure that from the insurance company’s perspective, the customer doesn’t exploit reinsurance by renovating an old run-down house on the cheap.
How is it different from home insurance?
In contrast, home insurance covers the home itself. Generally, it covers four aspects of things that could go wrong. Fire, theft, personal injury and bad weather. These things tend to be high-cost problems that derive from disasters and unlikely (but possible) events.
Home insurance is arguably more important than warranty insurance, although they are not mutually exclusive in the slightest. In fact, they do not overlap one bit. Home insurance is a no-brainer whether you live in a hurricane-prone state such as Florida, or in the middle of Washington. Because such disasters as a fire or breaking have such a large price to pay, mortgage companies clear the threat to the secured asset. Thus, mortgage companies will always require you to have home insurance.
Home warranties are not designed to protect you from disasters, rather, their value is determined on a case-by-case basis. For example, if you are having a new kitchen installed and all the appliances are brand new, it’s unlikely that you’re going to claim on a breakdown anytime in the near future. Therefore, you may want to factor in how old your appliances are, how prone to breakdowns they are, and how much it would cost to replace or fix them.
There are some other important differences that can be found in an elaborate comparison insurance/warranty.
Is home warranty compulsory like home insurance?
As mentioned above, home insurance is almost always mandatory by a mortgage company. If you don’t have a mortgage, then home insurance is still possibly mandatory by law, depending on where you live. Mistakes aren’t quite so high with appliances, which is why a home warranty insurance is voluntary.
Is home warranty even necessary and can it save you money? (only in extreme cases)
As described above, whether home warranties are going to save you money is dependent on your circumstances. However, this isn’t the true reason why we get insurance. We get insurance to cover ourselves in the worst-case scenarios. If you’re anything like the average American, you have under $5,000 in savings. In the event of a plumbing issue, an air conditioning unit breaking down and a leak in the swimming pool, you could be looking at a $10,000 bill in the space of a few weeks. This is an extreme scenario, but there are many other more benign scenarios that cause huge problems for Americans.
What is home appliance insurance?
In the past few years, home warranties have gotten a bad reputation. This results from various public stories where homeowners have been denied of expected and simple claims.
For example, IMAX plastering was denied the claim for a broken-down A/C unit. And a hot state in the summertime, particularly for an older person, this is a very dangerous situation. Unfair claim denials can lead to pensions and savings being unexpectedly and unjustly emptied. Furthermore, you expect these replacements once approved within a matter of days, which again has been failed by many companies.
As a result of this time reputation, home appliance insurance was born. Companies are starting to use this new name “home appliance insurance” as a way of avoiding the negative search results when you search for home warranties. Don’t be fooled by the new name, but equally, don’t be fooled into thinking that the negative news stories are entirely representative of home warranty companies. Like with any market, there will be ones looking to cut corners, and there will be ones looking to offer a fair service.
Which regulator is dealing with home warranties?
Regulators exist in order to keep in check the companies that seek to cut corners. However, home warranties are not exactly the most common insurance product in America or the oldest. On top of this, there are 50 states that all tend to have their own regulation, so finding out about your state regulation on the home insurance market is no easy feat.
Some examples are here:
As you can see, not only are the regulations under different names, but they’re in completely different departments. There are no federal laws that regulate home warranties, unlike home insurance. This is a huge issue that needs to be addressed. Before getting home insurance, it is worth checking your state’s regulations on the market. Regardless, this only further emphasizes the importance of picking the right company if you choose to have a home warranty. Use the internet, word of mouth, local news, local regulation, and company reputation when determining which company to pick.