Home Insurance and Your Home Warranty
If you buy a new home in many parts of Canada, you're required to have a home warranty. Knowing some of the basics of the home warranty process can help protect you and your home. Here's how it works.
Depending on where you live in Canada, you may need a home warranty when you buy a new home. A home warranty helps protect your investment and carries with it some rights and responsibilities. Home warranty requirements vary by province or region, so checking with authoritative local sources is important to sure you have the appropriate coverage to protect your home. For example:
- In some provinces, such as British Columbia, you must have a home warranty, but you can choose from the offerings of several companies to find the warranty that suits you best.- In Ontario, new home warranties are administered by Tarion, a non-profit corporation that processes new home warranties on behalf of the Provincial Government. - In the Maritime Provinces, new home warranties are not mandatory, but some builders work with a non-profit company to offer their buyers a warranty program.
How does it work?
A home owner's warranty gives you the ability to make a claim if some of the work done on your home by the original home builder turns out to be defective. The rules are different from province to province, so make sure you read your warranty carefully and understand it before you move in.
Your warranty will typically cost a few hundred dollars, payable as a one-time fee which is part of the closing cost of buying your home. A new home warranty is similar to a service contract in that it entitles you to coverage for repair costs on home systems such as heating, plumbing and electrical systems should you need them. When you do your final pre-delivery inspection, make a list of items you want to bring to the builder's attention before you move in.
Be aware that you may void your warranty if you do added work on the home such as installing upgraded floors, building a deck or taking out a wall. The builder is only responsible for work he has done, so any additional work may not be covered or could invalidate your warranty. You are still responsible for basic home maintenance, so make sure you read your warranty and know your responsibilities too.
In Ontario, Tarion also protects a homeowner's deposit on the sale of the house if the sale eventually falls through due to no fault of the home buyer. This protection can cover up to $40,000 so it pays to make sure you're covered. If you make a claim, the company administering the warranty has the final decision of what gets done. Both you and the builder will ultimately have to abide by the warranty company's decision.
What about home insurance?
Home insurance is a separate policy that is also part of your home protection process. In Canada, all home buyers need home insurance in order to secure a mortgage. Home insurance is typically an annual premium which, on average, can cost about $400-$800 per year.
Home insurance differs from your home warranty in that it covers the cost of damage to your home and your possessions from things such as fire, loss or theft. Home insurance can also cover you from personal liability issues, for example if someone else's property is damaged in your home.
Home insurance policies come in a variety of coverage levels, from comprehensive coverage that covers all insurable losses and damage to your home to basic coverage which only covers the specific perils you choose to protect against.
Policies vary from company to company, so if you're in any doubt, make sure you contact your broker and be sure that you have the right level of coverage for your home.
Do I need both?
The short answer is, "yes." There may be some overlap in coverage, but for the most part, home owner's insurance and new home warranties cover different things for different reasons.
New home warranties don't cover theft or fire damage to your home and they also don't offer personal liability insurance. Home insurance doesn't cover issues of the builder's mistakes or problems with such things as plumbing, heating and electrical issues. Your home warranty and your home insurance policies work together to provide you with security and peace of mind and protect your largest investment, your home.