Understanding Warranties and Insurance Terms for New Homeowners
A number of products and services exist to help homeowners protect what will likely be the largest investment they’ll make – buying a home. The key to their effectiveness is gaining a clear understanding of various industry terms, defined by the non-profit National Home Service Contract Association (NHSCA).
Home Service Contract/Warranty
A home service contract provides service, repair or replacement due to normal wear and tear on major, built-in household appliances and systems. Most cover items such as dishwashers, ovens, wiring and plumbing systems and heating, ventilation and air conditioning systems (HVAC).
Many contract providers also offer a menu of optional items such as pool pumps, spas and freestanding appliances such as refrigerators and clothing washers and dryers for an additional fee. Rural homeowners may also elect to add septic tanks or well pumps.
At an average cost of $550 a year, contracts historically renew annually. In recent years, many providers have begun to also offer coverage on a month-to-month basis.
Qualified contract providers maintain a toll-free service call line 24 hours a day, seven days a week for the convenience of their customers. Dispatch of a trusted local service provider usually occurs within 3-5 business days, with expedited options for emergency situations.
Service calls average approximately $75 and protect the homeowner’s pocketbook, as some repairs and replacements have the potential to run thousands of dollars with no contract in place.
Builder’s Home Warranty
A builder’s home warranty is very different from a home service contract or warranty. These warranties, provided by the builder on a new home, are designed to offer coverage on the actual workmanship and materials used in the home’s construction.
Product and Extended Warranties
Retailers and manufacturers frequently offer warranties on the purchase of on the goods – such as electronics and automobiles – they make and sell directly to the public through retailers. These new product warranties are generally active for a limited time to safeguard against existing defects in the product.
Extended warranties are just that – warranties that extend beyond the original warranty period. At purchase, retailers may offer to extend a new product warranty for an additional price. These new product or “retail” warranties are part of a separate industry, aside from the home service contracts/warranties.
There is little similarity between home service contracts and insurance. Insurance protects a homeowner against partial or total damage or loss to the structure itself or possessions in the home. Insurance protects against sudden and fortuitous events such as fire, wind, hail, theft, collision or other accidents. Insurance does not cover breakdowns due to normal wear and tear. The two products complement each other – they do not overlap.
Homeowner’s insurance also provides liability coverage against accidents in the home or on the property.
If a tree falls on the exterior air conditioning unit of a home, it s covered by insurance. If an air conditioner stops blowing cold air, it is covered by a home service contract or warranty.
In most states, it is not legal for a home service contract to cover anything which could be covered by insurance.