Home warranties and insurance

If you're a first-time homebuyer, all of the jargon and procedures can be confusing. There are appraisals, inspections, warranties - implied and otherwise - and the much-talked-about homeowners insurance. What do all of these things mean?

When house hunting, it's common for buyers to hear discussions about home warranties and see realtors using warranties as a selling point on a house. You may wonder if a home warranty is the same as home insurance, and if not, what's the difference? The answer is: No, they aren't the same, and there are many differences in what the two policies cover and for how long.

Home warranty coverage
A home warranty policy is never required but it protects homeowners' major appliances and systems, including refrigerators, air conditioning units, heating equipment, plumbing, electrical and more. It will cover the cost of repairing or replacing the appliance or system.

Many warranties last a year, and it's common for home sellers or buyers to purchase a warranty to cover repairs in the first year of owning a new house. These policies protect sellers from dealing with and potentially being responsible for problems after they've sold the house.

Insurance coverage
Home insurance is almost always required by mortgage lenders and protects a person's home and possessions. Generally, home insurance will cover the cost of accidental damage to the interior or exterior of the house and financial loss from natural disasters, vandalism and theft.

Home insurance may be priced by the year, but homeowners should renew it annually.

Should you have both?
Whether you want to have a home warranty on top of your home insurance policy is up to you and will depend on multiple things, including your budget and the age and condition of the appliances and systems in the house. If you have room for a home warranty in your budget, it can give you peace of mind. That way, if one of your major appliances dies just months after you buy a new house, you can call the warranty provider and they'll take care of calling a repair service as well as the bill.

Read carefully
No matter what policy you purchase, you need to read it carefully and discuss with your insurance agent what it will or will not cover. Many home insurance policies don't cover damages caused by floods, which is troublesome if you know the home had been damaged by water before or you live in an area susceptible to floods. Home warranties aren't all inclusive either. If you purchase a policy, be clear on what appliances and systems it covers.

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