Home buyers & sellers in Silicon Valley hear about various types of real estate related insurance products and they can sometimes be confused with one another: Homeowner’s (or Fire) Insurance, Title Insurance and Home Warranties. We’ll discuss them today and hopefully will clear up the confusion.
Insurance Choices: Homeowner’s Insurance, Title Insurance, and Home Warranties
Homeowner’s Insurance pays you money to cover losses in the event of a fire or other unseen catastrophe (such as a tree falling on your home, a fire caused by lightening or a fence falling down in a windstorm). Often there’s a deductible but beyond that you have major coverage for losses in most cases. There are some caveats, of course. If you purchase a home using financing, your lender will require you to buy this type of insurance. It is sometimes also called Fire Insurance.
Homeowner’s insurance does not cover damage from earthquakes or flooding from creeks, rivers or dam failure. If you have a fixture that fails and the home floods, though, that is probably covered.
Homeowner’s insurance does not guarantee that if something is destroyed it can be rebuilt. For instance, in older parts of Santa Clara County (such as downtown Saratoga, San Jose, Los Gatos and Willow Glen) there are detached garages built right up against the property line or very close to it. In most places there are now setback requirements of about 5 feet or so. Should that garage burn down (or be destroyed by termites or anything else), it can only be rebuilt, most often, if it’s moved. Creating a new foundation is expensive – and that may not be covered by your HO insurance.
Title Insurance comes in two basic versions: owner’s policy of title and lender’s policy of title. This type of insurance is against issues with who owns the home – any title issues or “clouds on title”. The owner’s policy is a one-time expense that’s paid for, usually by the seller, when you purchase a home. The lender’s policy is normally paid for by the buyer is there’s a loan on the property. If you refinance your property, you’ll be required to get a lender’s policy each time you refi the real estate. (I wrote about it a couple of months ago here on the Valley of Hearts Delight blog: What Is Title Insurance and Who Pays For It?)
Home Warranties cover malfunctions or failures in the components of the home, for example, if the oven stops working, the water heater springs a leak, etc. Not everything in the house or condominium is insured by the basic policy but there are “riders” that can expand coverage to include items such as the air conditioner, the roof, a pool, etc. Home warranties generally cost anywhere from $240 to $600 depending on what’s included. If the new home owner needs to have a service call, the cost will be anywhere from about $40 to $60 for the visit and usually that covers repairing or replacing what’s not working.
If you are buying an older, historic home it is important to remember that “code upgrades” will not be covered by most standard policies. For example, once I had a listing in Cambrian Park where the house was about 60 years old. The water heater was tucked into a teeny, tiny closet. When the water heater failed, the closet had to pretty much be dismantled so that the water heater could be exchanged for a new one. The code, though, required some changes in the way it was to be installed – it could not go back in the way it was (and be permitted). With a regular home warranty the changes required due to the code would not be covered, but there are riders that do cover it. Home warranties are sometimes also called Home Owner Protection Plan (HOPP).
Want to know more about home warranties? I wrote in detail about HOPPs a couple of years ago in this blog: Buying a Home Warranty in Silicon Valley? What You Need to Know to Choose Well..