What is the difference between a home warranty and the home insurance?
I just received this question in an email today and since I get asked this often, I thought I’d post a response on our Pasadena real estate site.
Let’s talk about home insurance first. If you are buying a home and getting a mortgage, a lender will require you to show proof of home insurance before the loan funds and property title can be transferred. A typical home insurance will cover the replacement or rebuilding of the property in case of fire and some other disasters like hail and lightening. Please note that there is an additional policy for earthquakes. They are not standardly covered.
A typical home insurance also covers you against loss of use of your home. It offers protection for your personal belongings and usually has some personal liability insurance including medical payments.
If you are buying a condominium or a townhome,insurance is required if you are getting a home loan, as well.
Typically, when a home seller sells their Pasadena area home, they will provide a Home Warranty or what is also known as a Home Protection Plan for a year. Of course, it’s a negotiated item, but smart home sellers and their agents understand the need for home warranty since it protects them from future issues. Remember the little thing called Murphy’s Law. Well… there’s just not getting away from it. The moment, you move into your new house, something breaks. It could be an appliance, an electrical issue. The bathroom backs up or the a/c gives out. It just happens.
Home Protection Plans pick up where homeowners insurance leaves off. It will cover mechanical breakdown of systems, wear and tear or other problems that come with age and use. A usual policy will run you about $400 a year and has a copay that ranges from $55 to $75 per incident. Some of the companies to consider are American Home Shield, First American Home Warranty and Old Republic. All have been around for quite awhile.
For example, a few years ago, my central air conditioning and heating unit stopped working at my house. I call my Home Warranty Company and they sent out a licensed technician to repair. It turned out that I needed a brand new system. To make matters worse, my A/C was on the roof at the back of the house. A crane was necessary to replace the unit. The home warranty covered the entire repair including crane, new unit, installation. I was out of pocket for $60, but would have had to pay close to $3,000 if I didn’t have this coverage.
I recommend that when you are buying your home, your real estate agent requests a Combo Plan with Upgrades which will cover both systems and appliances as well as any new code upgrades that are necessary.
READ MORE: How to Buy a House in Pasadena
Please note that each Homeowners Insurance policy and Home Warranty (Home Protection Plan) is unique. Read your policy carefully and work with your insurance agent and real estate professional to make sure that you understand your plan fully before purchasing.
Thinking of selling your Pasadena area home? Interested in finding out the current market value of your single family home, condo or investment property? Then call Irina Netchaev at (626) 629-8439 to discuss what is happening in today’s Pasadena Real Estate Market.
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