What is Home Warranty Insurance?

Home warranty insurance is a type of private insurance that homeowners can obtain on their properties to aid in offsetting the expenses associated with specific incidents covered within the terms of the policy. While the scope of coverage will vary from one home warranty plan to another, many focus on the basic systems within the home, such as the heating and cooling system, the plumbing, and the electrical wiring. In some cases, home warranty insurance will also include protection for major appliances. In some cases, individuals selling homes will secure this type of coverage on behalf of the buyers, effectively protecting themselves from out of pocket expenses if some major system within the home should fail within a limited time after the sale is complete.

One of the benefits of home warranty insurance is that it helps to cover expenses that may occur when some covered aspect of the home should fail under what is considered normal and standard use. For example, if the wiring within the home should begin to malfunction, and there is no evidence that the owner has attempted to overload the electrical system, home warranty insurance would either partially or completely offset the replacement cost of the wiring. In like manner, if the heating and cooling system should malfunction and there is no evidence that the owner has taken actions that place additional stress on the unit, the insurance plan would help to cover the expenses of replacing the existing system.

It is not unusual for a homeowner who is selling his or her property to secure home warranty insurance that protects the interests of both the seller and the buyer. This is often seen as a benefit to the new owner, since the previous owner is in effect helping to insulate that new owner from potential issues resulting from some unforeseen defect in the house and its systems. For the seller, the investment in the home warranty insurance means that if something should go wrong with a major system within the home during a specified period of time, there chance of the seller having to cover the cost of that failure out of pocket is reduced significantly.

In jurisdictions that hold sellers accountable for properties they sell for a period of two to five years after the sale, securing home warranty insurance makes sense for many people. While there is always the need to determine if the failure of a given system is not due to extenuating circumstances associated with the new owner, such as negligence or misuse of the system, the warranty insurance makes it possible to ease the financial burden that would be incurred by either the previous or current owner, assuming the event involved does meet the criteria in the home warranty coverage. While the insurance can be somewhat expensive, the cost is easily offset by the peace of mind it provides, even if no incidents occur during the life of the policy that result in the filing of a claim.