Definition of an Insurance Warranty

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Many people confuse the terms "insurance" and "warranty," sometimes using them interchangeably or combing them together to describe a product they buy for their homes. However, home insurance and home warranties are two different things and insurance policies contain warranties that don't refer to either one. Be sure you're using the correct term to describe the correct thing in order to avoid potentially costly confusion.

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Warranty Insurance Definition

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According to JRank, a warranty in an insurance policy states that something the insured person says is true. An insurance contract is written on the principle of utmost good faith, meaning each party must trust that the other is being completely truthful. For the contract to be valid, you may have to warrant that an assumption the insurer is making is true. For example, if you are applying for life insurance, you must make a warranty that you are not terminally ill.

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If the insurer discovers that one of your warranties is untrue, it generally has the power to void the contract and not honor any claims you make. This is the only instance where the term "insurance warranty" is accurate.

Defining the Meaning of "Home Warranty"

Home warranty companies sell warranties, which are different from homeowner's insurance policies. According to Home Warranties of America, a home warranty is a service contract that pays repair and replacement costs for certain covered appliances in your home. For example, if you buy a warranty that covers your stove, and then the stove breaks, your service provider sends a repair technician to your home to perform the work. Your warranty company pays the bill, subject to any co-payment or service fee you agree to in the warranty contract.

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Home warranties are often confused with insurance contracts, but they are not the same. An insurance contract is an agreement by an insurance company to pay for repairs to your home caused by one of the perils listed on your policy, up to the limit you select and often including the complete rebuilding of your home if necessary. The warranty, by contrast, pays for routine mechanical breakdowns of your appliances. Your insurance policy specifically does not pay for these costs because normal wear and tear is excluded from standard homeowner's insurance.

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What a Lender Requires for a Home Purchase

If you say "insurance warranty" to refer to either the insurance policy or the service contract, you can easily mistake one for the other and end up without the kind of coverage you thought you had. Homeowner's insurance is typically required by your mortgage lender, but a warranty is not. If you file a claim for a broken dishwasher with your insurance company, it will deny your claim. However, if you report fire damage to your warranty company, it will advise you to call your insurer.

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According to the Consumer Finance Protection Bureau, a homeowner's insurance policy will pays for damages or losses incurred to a property in the instance of an unexpected event, such as a fire or burglary. This is why it is often referred to as "hazard insurance." Most standard polices don't include coverage for earthquake or floods, but these can be added to a policy.

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