Insuring appliances? That’s Why Terminology Matters

Understanding the difference between your home warranty and home insurance policy can save you thousands. While homeowners insurance covers the structure and the property, your home warranty will act as your home appliance insurance until the warranty expires. Read our guide now to learn important home appliance insurance terms.

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Kate Bregovic has been working in the financial planning and investment services industry for over 10 years. Now being a freelance writer, she is well equipped to provide advice on a wide array of areas.

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Laura Walker graduated college with a BS in Criminal Justice with a minor in Political Science. She married her husband and began working in the family insurance business in 2005. She became a licensed agent and wrote P&C business focusing on personal lines insurance for 10 years. Laura serviced existing business and wrote new business. She now uses her insurance background to help educate...

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Reviewed by Laura Walker
Former Licensed Agent

UPDATED: Nov 9, 2020

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Home warranty and home insurance are terms that consumers often mix up. In fact, there are types of warranties that even information portals often refer to as “insurance”. This can lead to much confusion and many problems.

Every insurance agent should understand exactly why such things happen, as well as the difference between these services. In much the same way as you learn insurance agent designations, you need to also learn the ins and outs of home warranty policies to enable you to explain how they differ from insurance and avoid any potential issues with customers.

Home Warranty vs. Home Insurance: Understand the Difference

large yellow two story house with many windows facing front yard

Both home warranty and home insurance are types of protective service which cover your home and the items inside it. Home warranty only covers some essential home systems and appliances which are included in the policy. Insurance, however, is focused on the structural elements of the home as well as damage from specific outside factors, such as theft.

Usually, simply reading the policy should be enough to understand the difference between a warranty and insurance, as they cover different things. However, people often get confused with the home appliance warranty in particular. In this case, both the warranty and the insurance plans can be used to cover devices, but they provide a different type of protection.

For example, let’s imagine a washing machine breaking down due to wear and tear and causing some water damage. Home insurance will pay for flooring repair after this kind of damage. However, it’s a home warranty that will pay for the repair of the machine itself.

Even if the device is covered by an insurance policy in some form, such as damage by fire, this type of policy will not cover natural wear and tear or accidental breakdown.

In a way, a home warranty plan is most similar to an extended manufacturer’s warranty. But it covers a variety of items at the same time, instead of just one.

A homeowner can protect all of their most valuable home appliances, and systems like plumbing and electrical, with a single plan.

An insurance agent needs to truly understand this difference. In this way, if a customer comes seeking such an “insurance”, they would be able to refer them to a different provider. This will help avoid any miscommunication, which might lead to dissatisfaction, scandal, and accusations that could quickly ruin an agent’s reputation.

Also, one should explain to any prospective customer that coverage isn’t the only important difference between a home warranty and home insurance. Differences in the legal status of these services might be a far more important factor.

The home insurance industry is rather well-regulated and is also a major part of the US economy. Home warranties, on the other hand, aren’t regulated in the majority of states. And even if some measure of regulation exists, it’s limited. Therefore, it’s not a surprise that there are multiple cases of home warranty fraud, like this.

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Why is home warranty so often mistaken for home insurance?

The main cause of the widespread confusion about “appliance insurance” is, surprisingly, online marketing. Just as insurance agents use SEO to attract customers, various information portals and home warranty providers use it to attract visitors to their websites. And “appliance insurance” is one of the most popular keywords they use for it.

As a result, a consumer looking for a way to protect their home ends up confused or ill-informed about the exact type of policy they need.

Professional home insurance and home warranty sources do not use these words interchangeably. However, various info portals that consumers often use for research often do.

What can be done to break through the confusion?

woman in front of chalkboard juggling all insurance and finance topics and options

Spreading awareness about this issue is the most effective way to alleviate any confusion over terminology. And it must be fixed because it can result in issues for everyone. For example, if a consumer who needs an insurance policy ends up buying a warranty instead, they will be most unhappy when the covered item does indeed break down.

In this situation, they won’t be able to get compensation and therefore, the money they have already spent on the policy would have been wasted. It would be the same if they buy appliance insurance instead of an appliance warranty.

An unsatisfied customer is a customer who will not hesitate to publish multiple negative reviews.

Statistically, people share negative opinions about their experiences more often than positive ones. This means that the provider, as well as any agent who happened to be involved in the deal, will suffer a blow to their reputation. Considering how difficult it is to build one today, you should avoid this at all costs.

So, spreading awareness of the differences between home insurance and a home warranty is an important step. And considering that it is essential to make the public aware of this issue, you should be proactive in doing this. Posting informative articles on your blog, delivering lectures or creating webinars, vlogs, and podcasts which touch upon this topic can be most helpful.

Why Terminology Matters so Much in the Insurance Business

Every professional working with people and selling important service contracts to them must understand that the words they use matter. The way you speak to people may determine whether or not they choose to become your customers. The way you word documents will certainly matter should you ever go to court.

Even the way you word your ads matters, and not only because certain wording will make people more likely to click on it. As some home warranty companies that make false claims in their ads are now learning, this kind of misinformation might bring you up on charges. So, offering “appliance insurance” instead of “appliance warranty”, or vice versa, could be construed as fraud.

This kind of charge is something very few would recover from.

Considering all this, insurance agents have a duty to spread awareness about how insurance is not to be mistaken for warranty. You may even be able to use this as an opportunity to show prospective customers how coverage with more legal status and better regulation can be more beneficial to them.

To those interested in the most thorough protection, an agent should also be able to explain exactly what an insurance plan covers. This way, they will be able to choose a warranty plan that will complement their coverage.

References:

  1. https://www.reviewhomewarranties.com/appliance-insurance/
  2. https://www.usa.gov/property-insurance
  3. https://www.inquirer.com/business/secure-home-warranty-scam-pennsylvania-attorney-general-20190502.html
  4. https://www.inc.com/andrew-thomas/the-hidden-ratio-that-could-make-or-break-your-company.html
  5. https://www.azcentral.com/story/money/business/consumers/2019/10/02/choice-home-warranty-faces-fraud-charges-amidst-lawsuit/3841804002/

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