Home Warranties vs. Insurance Policies for Home Buyers in Billings, MT
As a real estate agent in Billings, MT, I run into a lot of different scenarios that make me go, “OH, this needs to be a blog post.” 😂 Truly, I would say that 90% of our blogs are born out of working with real clients and handling real problems. And this one is no different!
Recently I was working with a client where we ran into a scenario where they needed a very specific insurance policy to move forward with their home purchase.
Unfortunately, the situation didn’t end up working out for other reasons, but a silver lining – we DID find a solution for the insurance policy and it made me realize this is a topic that I’ve never really talked about before, but it’s SO important to be aware of as a home buyer.
When you’re buying a home, there’s lots of moving parts and two of those things are home warranty and insurance policies. It’s easy to feel overwhelmed by all the choices, contracts, and coverage options out there. While they may seem similar at first glance (after all, both offer protection), they work in very different ways and can have a significant impact on your finances, your peace of mind, and even your homebuying strategy.
So, in this blog post I’ll be breaking down the key differences and help you understand which option might be best for your situation!
What a Home Warranty Covers (and What It Doesn’t)
A home warranty is essentially a service contract designed to cover the repair or replacement of specific appliances and systems in a home. Typically, home warranty coverage includes:
HVAC systems
Water heaters
Plumbing
Electrical systems
Kitchen appliances
One of the biggest selling points of a home warranty is that it’s simple and straightforward. For a set fee, sometimes negotiated into the sale by the seller, you get coverage for about a year, and in many cases, the seller will provide a mid-level plan to get you started.
Sounds great, right? Sure… but there is often a catch that isn’t so obvious.
Home warranty coverage is often limited and it’s not as flexible as you might think.
Here’s how it typically goes: your seller agrees to include a mid-level home warranty policy that covers you for about a year. After closing, the home warranty company will call and try to upgrade you to a higher level policy and if you don’t upgrade, your coverage can go down.
So overall, you’re either left with fewer protections that you expected OR you’re left paying wayyyy more money than is really necessary. 👎🏼
Additionally, some home warranty plans have strict age limits for appliances, meaning older equipment may not even be covered. And any extras, like sewer line coverage or certain types of equipment breakdown policies often aren’t included unless you pay for upgrades.
Essentially, home warranties are a convenient safety net, but they can also be restrictive and sometimes end up costing more in the long run if you need extended or specialized coverage.
How Insurance Policies Offer More Flexibility for Home Buyers
Insurance policies, on the other hand, are generally more customizable and can provide broader protection for your home. Beyond the typical homeowners insurance, you can add riders or endorsements that cover specific appliances, systems, or events that you’re concerned about.
The 3 biggest pros with choosing insurance policies versus home warranties are:
Tailored Coverage
This is probably the biggest pro and is what I personally experienced with the client I was recently working with!
Depending on the property that you’re potentially buying, you may need specific coverage for various appliances, equipment, or systems that you want protection for, regardless of their age.
For example, the home this client was wanting to purchase had an older boiler and some unique mechanical systems that a standard home warranty wouldn’t cover. The solution? A specific insurance rider with equipment breakdown coverage.
With this option, we were able to ensure those systems were protected without the client having to pay for unnecessary upgrades or limited warranty coverage.
Flexibility in Claims
One of the biggest advantages of an insurance policy over a standard home warranty is the control it gives you when something breaks. With a typical home warranty, you’re often limited to a pre-approved network of service providers, which can mean longer wait times, fewer options, and sometimes extra fees if you go outside the network.
With a tailored insurance policy, however, you usually have the flexibility to choose your own licensed contractor or service provider, or at least have a say in how repairs are handled. This means you can ensure the work meets your standards and is done promptly!
For example, let’s say your HVAC system goes out. A home warranty might require you to use their assigned technician, who could be booked for days. With an insurance policy, you could call your preferred HVAC company and schedule a repair on your timeline, potentially saving money and stress while getting exactly the service you want.
Negotiation Leverage
One of the most overlooked benefits of understanding the age and condition of a home’s systems and appliances is how it can strengthen your negotiating position.
For example, if you’re looking at a home and see that the water heater is 12 years old or the HVAC system is nearing the end of its typical lifespan, you can use that information to ask the seller to make repairs, replace equipment, or adjust the sale price.
Even more than that though, once you know exactly what might need attention in the home, you can select an insurance policy that covers any remaining risks, giving you both protection and peace of mind.
Let’s go back to the boiler situation – if you know it will likely need to be replaced soon, you could negotiate with the seller to leave the old boiler in good working order, then purchase an equipment breakdown policy that would cover it if it fails within the first few years of ownership.
This approach gives you flexibility while ensuring you’re not left paying out-of-pocket for something you could have reasonably foreseen.
Overall, home insurance policies give you more freedom, more coverage options, and a longer-term solution compared to the limited scope of a typical home warranty.
What to Look for During Home Inspection
The only way to be able to properly negotiate, however, is by having a proper home inspection completed so that you truly understand the condition of the property. While it might seem like a home inspection is just a formality that you have to go through during the home buying process, it’s SO much more than that and can be the very thing that guides your decisions around home warranties and insurance policies.
Even though I highly recommend working with a professional (who will likely already check for these things), here’s a quick list that I encourage you to find out when you’re thinking about buying a home:
✔️ Major Appliances – check the age and condition of items like your water heater, oven, HVAC system, and washer/dryer. Older appliances may need extra coverage.
✔️ Home Systems – inspect plumbing, electrical, and heating/cooling systems for signs of wear, leaks, or outdated components. These are often costly to repair and may not be fully covered by a standard home warranty.
✔️ High-Cost Items – take note of sewer lines, boilers, well pumps, or other expensive systems. Some warranties exclude them or limit coverage based on age.
✔️ Potential Repairs – identify any visible issues that could be used in negotiations. You might request the seller fix them, adjust your offer, or ensure your policy covers them.
✔️ Coverage Gaps – consider how what you see affects your need for a home warranty vs. a more flexible insurance policy. Tailored coverage can save you headaches down the road.
Questions to Ask Your Insurance Agent
Once your home inspection is complete and you have a better understanding of the special circumstances you may have when it comes to insurance coverage, it’s wise to chat with your insurance agent and discuss your options.
Here are some key questions to ask:
What specific systems or appliances can I add coverage for?
Ask about coverage for things like HVAC units, water heaters, or even a sewer line. Some policies allow you to tailor protection based on the home you’re buying.
Are there age limits for appliances or systems?
Make sure older equipment is eligible if it’s in good working order. Some policies might cover a boiler or AC unit beyond the 15-year mark, which many home warranties won’t.
How does the policy handle equipment breakdowns?
Look for policies that cover mechanical or electrical failures, not just damage from a covered event like a fire or storm.
How much will claims cost me?
Understand deductibles and service fees so there are no surprises down the road.
Can this coverage be factored into negotiations?
Knowing what can be insured or replaced can help you negotiate with the seller if certain systems are older or need attention.
Overall, while home warranties are appealing for their simplicity, they’re often limited in coverage and flexibility. Upgrading a plan can quickly become expensive, and certain key protections may not be included without extra costs.
Insurance policies, on the other hand, give homebuyers the ability to customize protection for their unique situation, cover older equipment, and even use coverage strategically during negotiations. They often offer more freedom, better long-term value, and can provide peace of mind knowing your home is protected in a way that fits your needs.
Ready to start the home buying process in Billings?
So, if you’re buying a home in Billings (or anywhere, really!), don’t think you have to default to the home warranty the seller offers. The point here is that YOU. HAVE. OPTIONS.
And if you aren’t sure which route is best for you, talk to your real estate agent! You’re not meant to make decisions like this on your own when buying a home. Your agent can help you navigate the situation and ensure that you’re making the choice that benefits you the most.
If you’re ready to buy a home in Billings and you’re looking for that extra support along the way, I’d love to meet ya! CLICK HERE to get started and let’s find the home (and insurance policies 😉) that are right for you.