We have previously discussed the importance of home insurance. In fact, lenders require it, although we recommend having insurance even if you do not have a mortgage.

However, this is different than a home warranty. While you can consider both a type of insurance, each covers different circumstances.

Home insurance

A home insurance policy covers expenses for your repairs when there is an event, such as a natural disaster, fire, and theft. When you are shopping for an insurance policy, you need to understand what is covered and the deductible. You can choose a higher deductible in order to lower your premium, but this provides less protection since you have to pay more out of your pocket in the event you need the insurance.

For a condo, you own the unit, so you need to insure it and all of your contents. In a co-op, you are a shareholder, owning a percentage of the entire building. In this case, you should have insurance for your personal property, and the co-op board will purchase a policy that covers the building. Your monthly maintenance fee contributes to funding the policy.

Home warranty

You are not required to have a home warranty. Unlike a home insurance policy, which would cover the items when there is a specific event, a home warranty covers the item for normal wear and tear. Home warranties cover specific appliances when these breakdown, either paying for the repair or give you money towards a replacement, depending on the policy’s details.

Typically, the items include the furnace, air conditioning, washers/dryer, and dishwasher. Again, it behooves you to examine the specific policy to see your coverage and deductibles. It is not unusual for the policy to have a modest deductible. The basic warranty may not cover the most expensive items, although you can purchase additional coverage to include items not covered in your policy, if you wish.

A negotiable item

When you are purchasing your home, you can ask the seller to pay for a home warranty for a period of time, typically a year. This can help ease your concern, particularly if the appliances are older. Sellers might go along to alleviate the buyer’s anxiety and help close the deal. A survey taken several years ago showed homes with a home warranty sold faster and for more money, although this was conducted by American Shield, a large provider of home warranties.

Cost-benefit analysis

If you are getting a home warranty on your own, weigh the premium cost against the potential repair expense. You might find it more economical to place the money in a fund that you can use for repairs or replacement. This takes discipline to create a special savings account and regularly contribute money, however. Of course, if you are handy, you might not need a home warranty policy at all.

You do not get to choose your own person to conduct the repair. When something breaks down, you call the warranty company, which sends someone from one of its contracted repair companies. You should keep this in mind if you already have someone in mind that you like very much.

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