Although a home warranty and homeowner’s insurance policy share some similarities, they have essential differences. For example, they both help pay for the cost homeowners may incur when the home or its contents suffers damage or stops working. Where they differ is in the types of repairs they cover.
A home warranty typically covers the home’s systems, such as the furnace, HVAC, plumbing, and electrical. Some also include major appliances like the washer and dryer, stove, and refrigerator. Depending on the warranty terms, the homeowner pays a discounted repair fee or a service call fee.
Homeowner’s insurance protects the home from the damage that results from a specific incident like a fire, theft, or weather event. These policies do not protect against everyday wear and tear, and many exclude water damage from leaking pipes. The policy pays the balance of the repair left after applying the deductible.
Since a home warranty pays for items not covered by a homeowner’s insurance policy, it seems like a good idea to purchase one. This gives the homeowner the best of both worlds: coverage for catastrophic events and everyday use — at least on paper. Unfortunately, the reality is that many homeowners fail to realize exactly what the home warranty does and does not cover — even when they purchase a whole-home policy. Use the guide below to understand better the coverage in a typical home warranty.
Water Leaks
Most home warranties cover plumbing issues like clogged drains and leaking pipes. However, this may not include the cost of repairing the damage water leaks caused to the walls and surrounding areas. The homeowner may need to pay the entire cost to replace the drywall, subfloor, and wall studs, including mold or mildew that starts to grow in the damp environment.
Electrical Circuits
Electrical systems usually fall under home warranty coverages, with some exceptions. The home warranty may cover items like light fixtures and ceiling fans and leave out items like overloaded circuits, wiring used for cable, and computers. Homeowners should note what is and is not included under electric coverage. For example, they may be able to get a new ceiling fan but have to pay to replace the damaged circuit that knocked it out.
HVAC
One of the top reasons homeowners purchase a home warranty is to protect the home’s air conditioning and heating systems. It’s essential to read the fine print, though. Some home warranties only pay for repairs if the homeowner can prove they serviced the system annually. So, in addition to the home warranty, the homeowner may need to pay for a yearly service plan to ensure they comply with the warranty.
Garage Door and Tracks
In general, home warranties include protection for garage door openers. However, many of them do not offer to cover the actual garage door and its tracks. Unfortunately, repairing or replacing the door and tracks can cost more than the automatic opener, which is useless if the door and tracks are inoperable.
Misused and Improperly Installed Appliances
Even if the home warranty covers the water heater, stove, and washing machine, it may not pay for damages caused by the homeowner. This is because the warranty agreement assumes the homeowner isn’t using appliances outside their intended use. For example, using a standard home stove to operate a full-scale catering service could disqualify it from coverage. Similarly, incorrectly installed items — like a ceiling fan or overhead light fixture — may also not qualify because of user error.
Pre-existing Conditions
Most home warranties specifically exclude pre-existing problems in the home. Waiting until there is a noticeable problem to purchase a home warranty is unethical and likely to fail. Highly-skilled technicians can tell if the problem has been around for a while or a recent development. If the damage pre-dates the warranty, the homeowner may be responsible for the total cost of the service call and labor.
Roof
Home warranties usually skip roof protection. Even those that do cover roof leaks do not include entire roof replacement. Instead, they may exclude certain roof sections, such as covering over patios and porches. In any case, the warranty covers only the damaged part of the roof and not additional damage caused to the home or belongings inside.
Septic Tanks, Well Pumps, and Sump Pumps
Few home warranties offer protection for septic tanks, well pumps, and sump pumps, which presents a challenge for homeowners who don’t have access to municipal water and sewage. They may be able to purchase additional coverage specifically for these parts, but even that coverage may not pay to replace these items when they fail. This can quickly escalate into a messy and costly situation.
Solar Panels
Solar panels don’t qualify for home warranty coverage in most cases because they attach directly to the house. As such, they should fall under the homeowner’s insurance policy umbrella. This means the homeowner must file a claim and pay the deductible to cover the cost of repair or replacement.
Swimming Pools and Hot Tubs
Home warranties rarely include swimming pools and hot tubs in their basic policies because the cost to diagnose and repair them can quickly add up. Homeowners who want to cover these items may need to pay to add this coverage to the warranty. Again, they should pay close attention to what the warranty does and does not cover, so there are no surprises when the service technician shows up.
Protecting The Seller After Closing
Discovering leaking pipes, faulty wiring, or a damaged stove isn’t fun for anyone, and this is especially true for sellers who had no idea there was a problem. Frustrated buyers may believe the seller ignored or failed to disclose the issue and take them to court to resolve the problem.
Since E&O claims are not usually covered by homeowners or other insurance policies, New Venture Escrow (in partnership with CRES) can provide up to $25,000 of E&O coverage to pay for attorney’s fees and damages. There is no cost to have this policy in place and protects the sellers of an owner-occupied residence* against unforeseen disclosure violations. The policy is good for 180 days after close of escrow and can be extended for an additional 180 days for just $200.** That’s good for your pocket book, and lets home buyers know they will be taken care of if there’s an issue. To get more details on our industry leading E&O policy, please contact us today.
