2 Truths and a Lie: Home Warranty Edition  

A home is an important investment – an investment that can quickly derail your financial security if it is not properly managed. That’s why you acquire home insurance, to protect your investment in the event of a crisis. Yet, home insurance is riddled with coverage gaps – from what it will replace to what damage warrants replacement – so many homeowners are turning to another way to protect their investment: home warranties.

Home warranties aren’t new, but they have only recently become all but mandatory in the home purchasing process. If you are considering acquiring a home warranty for your property – regardless of whether you are just buying it or have owned it for some time – here’s a couple truths (and one pervasive lie) about the financial product.

You Should Get a Home Warranty in Addition to Home Insurance

Because both financial products safeguard an investment in a new home, many homebuyers assume they need either home insurance or a home warranty – not both. However, though they provide similar financial assistance, insurance and warranties protect different assets around your home under different circumstances. Therefore, it is true: You do need to acquire a home warranty on top of home insurance.

As is the case with most other types of insurance, home insurance covers damage to your home done in unique, unexpected events. For example, insurance policies in most areas will help you pay to repair your home after massive storms, fires, floods, earthquakes, and vandalism. Insurance will also pay to replace some damaged belongings and protect you from liability lawsuits, which occur if someone not living on your property is injured and sues for damages.

So what do home warranties cover? Unlike insurance, warranties protect you from the regular wear-and-tear your property experiences. When you first move into a new home, you can’t be certain that your appliances, your HVAC, your plumbing, your electrical, and other vital systems around your home are sound. A home warranty will pay to repair or replace systems like these that break down. Even better, your home insurance should pay for damages that result from their failure, like water damage from a busted water heater. In this way, insurance and warranties work together to provide you with comprehensive home protection.

You Can Acquire a Home Warranty Any Time From Familiar Providers

Recent homebuying trends have seen sellers paying for a year-long home warranty for buyers, showing their good faith that everything is in working order. However, after that year is up, few buyers realize they can renew the warranty themselves; as a result, the coverage lapses, and homeowners gain new financial liability for their home’s appliances and systems.

In truth, you can obtain a home warranty at any time – but that doesn’t mean you can wait forever. If your refrigerator stops running, a home warranty acquired after-the-fact will not cover the repair or replacement of your fridge. Thus, you would do better to renew your home warranty immediately after the seller’s coverage ends or else procure another warranty policy as soon as possible. The more systems you pay out-of-pocket to fix, the less effective a warranty will be in protecting your investment.

 You Must Pay Exorbitant Fees to Take Advantage of Your Home Warranty

A home warranty isn’t free. Usually, you will pay for your warranty with a monthly fee, the amount of which depends on your home, your area, and your warranty provider. Additionally, you will pay fees for service calls you make for repairs and replacements.

However, it is misleading to call these costs “exorbitant.” Rarely do inclusive warranties cost more than $75 per month, and depending on your provider, you could pay up to $125 per service call. Yet, were you to pay to repair and replace your own home systems, you would expend several thousands of dollars, and you would have no guarantee that the fixed systems would not break down relatively soon.

Home insurance pays for damages to your home, and home warranties pay to ensure your home does not experience damage. You don’t have to wait for any event to acquire a home warranty; in fact, it is best to look for policies and find an appropriate option well before you see signs of damage. All forms of security come with costs, but with home warranties, the cost of insecurity vastly outweighs the fees of service. In all, it is a sound financial decision to obtain a home warranty as soon as you buy a home.