Home Warranty vs. Home Insurance: The Difference
When you buy a home, it does not come with an owner’s manual. What if your AC or furnace breaks down and needs repairs? How do you know the difference between what a home warranty policy covers and what homeowners insurance covers?
What’s a Home Warranty Policy?
When you buy a home, your realtor will typically include a 1-year home warranty policy with the sale of the house. They pay for it (well, you pay for it), and it covers any appliances that might break down in the home that first year. Appliances often come with the home that can break down. They include air conditioners and furnaces that the previous homeowner can’t take with them to their new location.
Homeowners insurance and home warranties are two different things, though. You can look at it this way. The difference is “natural causes” vs. “mechanical problems,” and they’re two separate entities.
What Does Home Insurance Cover?
The role of home insurance is to protect you financially for damage to your home during a natural occurrence such as a tornado or fire. Items in your home can be covered by your policy if they’re lost or stolen during a robbery or home invasion.
Take your air conditioning system as an example. I once went out to a home where the AC unit in the back yard was ripped away from the spot where it sat for years. A chain was looped around it and hooked onto the thief’s vehicle. Then they drove off with the AC. The AC’s copper lines were ripped halfway up the stucco wall on its way up to the attic. Homeowners insurance would cover this!
Let’s say a fire breaks out in the attic of a home, and all the ductwork and the furnace are rendered charred and useless. Home insurance would take care of recouping your HVAC system. It’s these types of incidents that homeowner’s insurance will cover. Now let’s look at what a home warranty policy will cover.
So, it’s the hottest day of the year, of course, when your AC system breaks down. It has a mechanical failure. The condenser fan motor has stopped working. Because the fan stopped working, the compressor that pumps the refrigerant overheated and has become inoperable, too. These are the types of mechanical issues that regularly occur as an HVAC system ages. The AC can be repaired if the parts are available.
Home Warranty: the Service
An HVAC company that contracts for the home warranty company will come out for a service call fee of anywhere around $50 to $150. They’ll figure out what part you need, get it if it’s not already on their service truck, come back and replace those parts. Whether the part is five years old or 35 years old, if the system is fixable, that’s what your home warranty company will arrange.
You may want a new system, though. This one is 35 years old! Won’t the home warranty company pay for a new one for me? The truth is, it’s not in the best interest of the warranty company to be buying new systems for everyone, so if a repair can be made, it will be.
Make sure to read the fine print of both your home warranty policy and homeowners insurance policy, though. You’ll want to know what they cover and what they don’t. The home warranty company might pay for the repair part itself, but they might not pay for the incidentals that come with it.
Making Money on Incidentals
For example, if your evaporator coil has a detrimental leak and it’s determined it can’t be fixed, the warranty company will pay for a new one. They may not, however, pay for the new equipment risers, the sheet metal transition back to the existing ductwork, the refrigerant that was lost, or the valve caps that are missing from the outdoor AC. The HVAC company must make its money somehow, and these “incidentals” are where some of them will take the opportunity to rack up the price on unsuspecting homeowners.
For instance, a contractor representing the warranty company was going to charge a customer over $3,200.00 for a new evaporator coil with these risers, transitions, fasteners, couplings, and every other thing they could think of. Mind you, the coil was paid for by the warranty company! The customer called us with a request for a second opinion. We let them know we didn’t represent any home warranty companies, so they would have to pay us full price for the parts and labor on the job and work it out with the warranty company. They agreed. Our price, including the coil, came out to about $2,200.00 — $1000 less! This experience is one example of how a contractor may try to exploit a warranty.
Read the Fine Print
Do your due diligence before committing to anything. If something doesn’t sound right, check it out. The fine print on homeowners insurance and home warranty policies can be vague. There are pros and cons to each.
If you have any questions about this topic, we’d love to chat with you. Leave a comment below to continue the discussion!