close up of stainless steel oven and appliancesHome Warranty vs. Home Insurance

Home insurance does not cover wear and tear of appliances. The useful life of some common home appliances are:

Appliance Average Life (years)
Compactors 6
Dishwashers 9
Dryers 13
Washers 10
Freezers 11
Refrigerators 13
Boiler, Electric 13
Boiler, Gas 21
Furnace, Gas 18
Furnace, Electric 15
Furnace, Oil 20
Heat Pump 16
Oven, Electric 13
Oven, Gas 15
Microwave Ovens 9
Water Heaters 10

Given most homes have at least ten items above, you can expect a breakdown every couple of years -- this is where a home warranty proves valuable. How does a home warranty policy compare to a home insurance policy:

  Home Insurance Home Warranty
Average Annual Cost $1,100 $400
Average Deductible/Service Charge $1,000 $75
Percentage of Homes with Coverage 97% 4%
Frequency of Claims Once every nine years Failure Rates
Waiting Period before Coverage 0 days 30 days
Required with a Mortgage

Yes

 

No

Homeowners Insurance - Coverage and Exclusions

First of all, if you have a mortgage on your home, you HAVE to have a homeowners insurance policy. A homeowners insurance policy is quite comprehensive and covers your home in the event of a total loss as well as other scenarios including:

home insurance common coverage inclusions

Plus any add-ons you choose:

home insurance optional coverage add-ons

These policies are fantastic in the case that a substantial catastrophic event occurs that would otherwise wipe you out financially. However, if your dishwasher breaks down or cooling unit quits working, then a homeowners policy will be of no use. Your homeowners policy does not cover the following:

home insurance common coverage exclusions

Since wear and tear is a common issue for all those home appliances, the home warranty product was born to help with maintenance.

Home Warranties - Service Contracts

Home warranties, unlike homeowners policies, are service contracts on the appliances and systems of your home. They cover sudden breakage and provide routine maintenance to extend the useful age. The average homeowner pays over $2,000 annually on maintenance services so it may make sense to transfer this cost to a home warranty policy (and maybe save some money):

  • Home warranties are annual contracts, running roughly $350-$400 per year.
  • After filing a claim, the homeowner is subject to a service fee ($50-$75), which covers the cost of a visiting repair person.
  • A repair is not covered if the home insurance policy already covers the damage or if it existed before the warranty was active.

Home warranty policies usually have a limit, just like homeowners insurance. They typically cover ~$20,000 in appliances. The warranty company will also determine if a machine needs replacement or just a repair. Consumers tend to get upset when they are expecting a brand new $6,000 heat pump after their current one is damaged but only get a repair job. You lose the freedom to choose: repair or replace when you sign up for that home warranty product.

I hope that helps!

At your service,
Young Alfred