Quiz: Home Warranties Versus Homeowners Insurance

While home warranties and homeowners insurance are both designed to protect your home and the assets within it, they work very differently. In honor of National Home Warranty Day (Feb. 10), we’ve designed a quiz to test your knowledge about home warranties versus homeowners insurance.

Select the correct answer for each question below. Answers are provided at the end of the quiz.

Quiz: home warranties versus homeowners insurance

1. Which of the following does a home warranty cover?

a. Fire damage to your home

b. A broken refrigerator

c. Flood damage

d. Stolen jewelry

1. You don’t need homeowners insurance if you have a home warranty.

a. True

b. False

1. If your water heater breaks due to wear and tear, what type of coverage would apply?

a. Home warranty

b. Homeowners insurance

1. Will a home warranty cover scratches or cosmetic damage to floors or walls?

a. Yes

b. No

1. Who typically buys home warranties?

a. Real estate agents

b. Homeowners

c. Home sellers

d. All of the above

1. Can a home warranty be transferred from a home seller to a home buyer?

a. Yes

b. No

1. Both homeowners insurance and home warranties typically require monthly payments.

a. True

b. False

1. Will a home warranty cover damage caused by natural disasters, like hurricanes or earthquakes?

a. Yes

b. No

1. What is the main purpose of homeowners insurance?

a. To pay for regular system maintenance

b. To cover appliance repairs

c. To protect against unexpected, unpreventable damage

d. All of the above

1. Is a home warranty automatically included when you purchase a home?

a. Yes

b. No

1. Which type of contract requires a service fee for repairs?

a. A home warranty

b. A homeowners insurance policy

1. Can homeowners insurance and home warranties work together?

a. Yes

b. No

1. Do home warranties have exclusions? (Exclusions are items or issues not covered under the service contract.)

a. Yes

b. No

Considering a home warranty? Let your agent guide you

We hope this quiz helped you understand how a home warranty works versus how a homeowners insurance policy works. If you have questions about your homeowners insurance or think a home warranty may be right for you, consult your independent insurance agent. They may be able to help answer questions about any home warranty you’re considering. At the very least, they can help you understand all of your options, including expanding your homeowners insurance coverage. You can do this by purchasing an additional policy, like flood insurance, or a policy endorsement. Some homeowners insurance companies allow you to add coverage that is similar to a home warranty; however, it is called “Equipment Breakdown Coverage.” Your agent can explain more.

Answers:

1. B. A broken refrigerator. Home warranties cover appliances and major systems like your refrigerator, water heater, HVAC, electrical, plumbing, kitchen and laundry appliances when they break down from everyday use. Fires and stolen property are covered under homeowners insurance. Flood insurance is covered under its own policy, separate from homeowners insurance and home warranties.

2. B. False. Homeowners insurance covers damage to your home and personal property caused by unexpected events like fires, theft and some natural disasters. It also offers liability protection if you or any of your household members or others named on your policy are sued for accidentally injuring someone or damaging someone else’s property. Without a homeowners policy, you’d be liable for any such damage. And if you have a home loan, your lender will require that you have a policy with limits high enough to repair or rebuild your home’s structure.

A home warranty is different from home insurance. It helps pay to repair or replace major home systems and appliances when they fail due to normal wear and tear. Warranties are service contracts that cover inevitable wear and tear and maintenance issues that lead to system and appliance breakdowns. In contrast, homeowners insurance protects against unexpected events like fires, natural disasters, and theft, which can cause significant property damage or loss.

3. A. Home warranty. A home warranty pays to repair or replace major home systems, like your water heater, if they fail due to everyday use. However, your coverage will depend on your policy and coverage level. Home warranty companies usually require a service fee for every new claim. Some home warranty companies offer flexible coverage for whole-house systems and appliances, or split coverage into systems-only or appliances-only based on your needs. Some home warranties have age limits on appliances and systems or require maintenance records, while others don’t. On the other hand, homeowners insurance doesn’t cover wear and tear at all.

4. B. No. Home warranties don’t cover cosmetic damage. They cover functional issues, like a broken appliance or system.

5. D. All of the above. While homeowners can buy warranties directly, home sellers or their real estate agents often provide them during property sales to address concerns about aging systems or appliances. This can make homes more attractive to wary buyers.

6. A. Yes. Home warranties can be transferred from home sellers to buyers. The transfer typically happens during closing. The seller initiates the transfer and usually pays a small transfer fee to the home warranty company. Then, the buyer assumes coverage according to the original warranty’s terms.

7. A. True. Both require regular payments, typically monthly but sometimes annually. Sometimes, home warranty companies and insurance providers offer discounts for paying annually rather than monthly. Ask your agent for more information about potential discounts on homeowners insurance.

8. B. No. Home warranties only cover breakdowns due to everyday use, not natural disasters. For those, you’d need homeowners insurance. However, know that homeowners insurance excludes certain natural disasters, such as floods, earthquakes and sometimes wind, depending on your area. For those, you’d need separate flood and earthquake insurance policies or added wind coverage.

9. C. Homeowners insurance is designed to help if your home experiences an unexpected, unpreventable event like a natural disaster, fire or burglary. Home insurance is designed to “make you whole” (an insurance term), meaning it returns your property to its condition before the covered event. It does not improve the condition. Home insurance companies will deny coverage for damages that you could have prevented, like a chronic leaking roof that you ignored or an animal infestation. In other words, it’s for major events, not appliance and system breakdowns that are to be expected.

10. B. No. Although home warranties are common in real estate transactions, they’re not automatically included. It depends on whether the seller has opted to purchase one. If you are buying a home, you may be able to ask for a home warranty during negotiations. If you are buying a newly built home, the builder usually offers a workmanship warranty to cover materials and defects, which is different from a home warranty or insurance.

11. A. A home warranty. Home warranties generally require a service fee for repair visits. According to USA Today, the typical service fee is around $75 per visit, but it can reach $150 or more. Conversely, homeowners insurance typically requires a deductible. This is the amount you pay out of pocket for a claim before your insurance company pays anything. Your deductible will depend on the terms of your homeowners policy.

12. A. Yes. Homeowners insurance and home warranties can work well together. They cover different aspects of your home: insurance for unavoidable disasters and theft, and warranties for repairs due to wear and tear. However, a home warranty may not always be the best protection for every situation. You can also add other insurance policies to your home coverage, or policy add-ons, known as “endorsements.” For example, a “scheduled personal property endorsement” allows you to cover valuable items like jewelry, art or collectibles, which wouldn’t be covered under a home warranty. Your agent can explain your options.

13. A. Yes. Home warranties have exclusions. For example, your home warranty coverage could be invalidated by improper capacity. If your air conditioner is too small for your square footage, it may not be covered. That’s regardless of the reason for the equipment breakdown. Other possible exclusions are damage due to delay or neglect, indirect damages (like food spoilage), cosmetic issues, appliance misuse, and improper installations or repairs you knew about before filing the claim.