Homeowners accustomed to having a home warranty policy understand that it is not completely dissimilar from an insurance policy. In fact, warranties are frequently regulated by the department of insurance and many are offered by insurance companies. However, there are some fundamental differences between home insurance policies and home warranties. Understanding the difference will help you evaluate your rights and obligations under your home insurance policy. Unrealistic expectations of coverage for excluded issues are a frequent source of conflict between policyholders and insurance companies.
One of the most important differences between a home warranty and a home insurance policy is the concept of fortuitous loss. A fortuitous loss is one that takes place by chance and is not expected or intended to occur. The home insurance policy is very careful to exclude claims for losses that are expected or intended from the standpoint of the policyholder. On the other hand, warranties function somewhat differently as they are intended to cover the quality and reliability of the home and its systems. There is some degree of expectation that things can, and will, fail. Therefore, both types of policies have a specific function, but you should not expect the regular home insurance policy to cover things more appropriately handled by the warranty.
Another important distinction between the two policies is the issue of damage. The home insurance policy is clearly intended to cover property damage. Its definition of property damage is physical damage to or destruction of the covered property. However, as you can see, it does not cover the quality of the property. The home insurance policy goes on further to exclude wear, tear, marring, scratching, deterioration, inherent vice, latent defect, or mechanical breakdown. These excluded items are generally the types of issues that would be covered by a warranty as they frequently do not include physical damage to the property and are often the result of an isolated failure of the product itself.
Where this does become somewhat confusing is when both policies may be triggered in the event of a loss. The home insurance policy is clear that it does not cover losses resulting from defect, inadequacy, fault or unsoundness in workmanship, materials, or maintenance. However, if a loss results from one of these causes and is not otherwise excluded, it’s still covered. As an example, if your new toilet fails and leaks all over your floor, causing damage, it’s possible to make two claims. You can claim on your home insurance policy the damage to the floor, assuming it was sudden and accidental. It’s also permissible to make a claim on the warranty for the failure of the toilet itself. Both policies would likely pay for their respective covered items and you would be made whole in a way that would not have happened had you only purchased one of the policies.
As you can see, both the home insurance and home warranty policies have a place in your repertoire of insurance policies regardless of where you live – San Diego, Fort Worth, Columbus, Oakland, Tulsa. Before purchasing either, you need to understand the coverages provided to realistically know what benefits you will derive and where to make a claim when something goes awry.