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Homeowners: Do you need a home warranty?

There is a difference between a home warranty and homeowner's insurance. In order to protect your assets and protect yourself from general risk and liability it's important not to confuse them.

As a homeowner are you prepared to protect your assets? Many home buyers are pleasantly surprised to find that a one year home warranty contract comes complimentary with their purchase of a new home, either as an added perk from the seller, or as a thank you gift from their real estate agent. But it's important not to confuse a home warranty with homeowner’s insurance . Unlike home insurance, a home warranty only pertains to appliances, systems, and/or structural elements in your home that may one day be in need of repair or replacement, it does not protect you from general risks and liability.

Whenever you sign up for any warranty, it's important to read the fine print and have a full understanding of what that warranty does and does not cover. For example, most home warranties cover home appliances, as well as all of the electrical, heating, and cooling systems, but certain fundamental appliances like a refrigerator, washer, or dryer, are routinely omitted from the list, much to the agitation of homeowners everywhere. However, these items may be covered with an enhanced home warranty.

Your contract may also stipulate that your warranty claim could be rejected if an appliance wasn't properly installed, or was subjected to improper maintenance or an unusual amount of wear and tear (as determined by the warranty company, of course). Sometimes the warranty company will insist on repairing an appliance that you'd greatly prefer to have replaced. And of course, the homeowner may pay a fee (usually less than $100) anytime a warranty company-approved technician or repairman makes a house call.

But despite some of the restrictions, experts across the industry often agree that a one-year home warranty is a good idea for first-time home buyers (especially when it's free). A warranty further safeguards you from having to pay out of pocket for costly home repairs especially if you are not financially prepared with an emergency fund. Newly built homes usually come with an extended ten year home warranty provided by the builder that covers the structural elements of the home, in addition to the one year warranty that covers the appliances and systems.

When it comes time to renew your free home warranty, you'll find that the annual cost of your policy can be anywhere from $100-$500 annually, depending on how extensive your warranty is. If you've been happy with the service you received from your home warranty provider, you might not mind paying for a second year of service out-of-pocket. But if you haven't actually had the opportunity to take your home warranty coverage for a test drive, do a little research on your provider and their local competitors before renewing your contract.

Visit the Protective Learning Center for more information on budgeting for home repairs and how to budget money for your first home.

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