If you purchased your home recently, you may have heard some talk about getting a home warranty. Unless you have done some of your own research - or if someone explained it to you - you may not understand the difference between a home warranty and homeowner’s insurance. However, there are major differences. Homeowner’s insurance covers damages and losses to your home and property due to events including fires, hail storm, property crimes, flooding, and other water damage that could affect the entire structure and/or a homeowner's personal possessions. If you have taken out a loan or mortgage on your property, a lender will require that you have homeowner’s insurance at all times in order to protect this important asset, often worth hundreds of thousands of dollars. Homeowners insurance may range from a several hundreds of dollars per year to thousands of dollars per year, depending on where you live, the value of your home and other factors, such as if your property is in a flood zone.

A home warranty does not cover these perils. Rather, it covers specific components of the home and is a contract between a homeowner and a private home warranty company. A homeowner may purchase a contract and in return the home warranty company provides for repair and replacement service on a home's major components. These components may include the home’s furnace, air conditioning, plumbing and electrical system, washers, dryers, refrigerators and swimming pools. Most plans have a basic component that provides all homeowners who purchase a policy with certain coverages. Homeowners can purchase various levels of coverage depending on the appliances in their home and what their own budget is.

How Does a Home Warranty Work?

According to Investopedia, “Home warranty companies have agreements with approved service providers. When something that is covered by a home warranty breaks down, the homeowner calls the home warranty company, and the home warranty company sends one of its service providers to examine the problem. If the provider determines that the needed repair or replacement is covered by the warranty, he completes the work. The homeowner only pays a small service fee, plus the money she has already spent to purchase the warranty."

Can a Home Warranty Help Sell Your Home?

A home warranty may serve to calm any fears that prospective homebuyers may have about how well (or poorly) as home’s appliances and components have been maintained. If you are selling your home, then offering a home warranty as closing concessions, can be helpful for buyers who have just depleted their savings to buy your home and who want to avoid any additional major expenses. For home sellers, offering the buyer a paid-up, one-year home warranty with the home purchase may provide a measure of protection against the inspection objection and resolution process. It is important to note that if a seller provides a home warranty, it does not exempt sellers from any legal requirements to disclose any known problems with the home.

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