There are a lot of things to consider when buying a home. With all the information coming at you, it can be hard to sort through exactly what you need and what you don’t need. New homebuyers frequently confuse the need for a homeowners insurance policy and a home warranty policy. Both are insurance but solve very different problems. When it comes to home insurance vs home warranty, here is what you need for your Metro Detroit Michigan home.
The Need for Insurance
If you have any sort of loan on the property, you will need a homeowners insurance policy that covers you from fire, water damage, theft, and vandalism. While the mortgage company is less likely concerned with your personal effects, it does want to make sure the actual structure it is loaning money for is protected.
A homeowners insurance policy is usually impounded with the mortgage, meaning the mortgage company wants to make sure the insurance is in force all the time so it will pay the first year and collect payments in the escrow account to continue making payments on your behalf each year. The mortgage company is usually named as an additional insured so they are notified of any cancellations, changes or lapses in coverage.
They will have specific requirements on the actual structure values limits, meaning they want to make sure that if there is a catastrophic loss, the house can be rebuilt to its state at the time of purchase.
The Need for a Warranty
No mortgage company will require a home warranty policy. The reason is this has to do with maintenance issues. Homeowners insurance policies deal with sudden and unexpected losses. The home warranty deals with something going wrong with the plumbing, air conditioner or an appliance. Essentially home warranties are insurance that covers things you didn’t see coming when it comes to maintenance.
There are basic policies and then additional coverages can be added depending on the needs of the homeowner. For example, most policies include coverage for the actual home (not outside the walls) electrical, plumbing, HVAC systems and kitchen appliances. You can add coverage for a washer and dryer, solar panels, water heaters for an additional premium payment.
So how do you know what covers what? This is where homeowners who don’t have both policies can become quite frustrated. Take this first scenario: a pipe bursts in the bathroom and floods the entire bathroom and bedroom. Cabinets, flooring furniture is soaked and needs to be replaced. This is covered by your homeowner’s policy because it was a sudden event that led to the loss.
Take that same scenario and go to the period when the contractor is fixing everything. He tells you that your homeowner’s insurance covers the pipe that burst but you have serious pipe problems throughout. Insurance won’t cover that and it will cost $5,000 to replace all pipes. This is when you call the home warranty company to replace the problematic pipes.
Who Can Pay for What
Every insurance policy has a deductible so be sure to look at that when you purchase a policy. When you make a claim you will pay the deductible. But who can buy the policy for you? Homeowners policies are bought by homeowners and paid for by homeowners through your mortgage company can buy one if you don’t and charge you – these are usually triple the cost of what you can get, so keep your insurance up to date. Home warranty policies can be bought for you. Many sellers will agree to a policy or real estate agents will buy it as a housewarming present.
Having both will make sure you are protected from sudden losses and long-term potential problems of replacing the most expensive components of the house.