How is a new home warranty different from insurance?

Buying a new home can be exciting, but it comes with some potential risks. Most homebuyers are aware of home insurance and the protections it offers, but if you’re considering a pre-construction home, you may learn that there’s a home warranty available as well. What’s the difference between the two? Both are important, but they work differently and protect you from different risks.

In Ontario, most newly built homes come with a warranty that’s provided by the builder and supported by Tarion, a consumer protection organization established by the provincial government. The new home warranty is different from the type of warranty you’d purchase to cover appliance repairs; it’s designed to help give new homeowners peace of mind that they’re getting the well-built home they were promised. Before buying a newly built or pre-construction home, it’s essential to know how the warranty works and understand your responsibilities in getting the coverage you’re entitled to, if needed. 

Here are some key differences to keep in mind.

Insurance coverage vs. warranty coverage
Home insurance covers losses and damage to your home and assets inside the home. Policies usually cover interior and exterior damage and loss of, or damage to, personal property due to events like fire, certain natural disasters, vandalism, theft and accidents.

Unlike home insurance, the new home warranty focuses on the potential risks that could arise after you sign a purchase agreement as well as defects in the home after it’s completed. Specifically, the warranty provides deposit protection and coverage against delays before you take possession. After the home is completed, the builder’s warranty provides coverage against issues such as structural defects or issues with work and materials, for up to seven years. The first year of the warranty provides the most coverage, so plan to be proactive about identifying any potential issues with the home and working with your builder to address them as soon as possible. If any challenges arise, Tarion’s team can help. 

Cost differences
Home insurance policy prices are determined by a number of factors, like the size, type and location of the home, and special features like swimming pools or wood stoves. Technically, homeowners aren’t required to buy home insurance unless required by their mortgage lender, but there are many options available to suit different budgets.

The new home warranty cost is paid for by the builder as a one-time fee for seven years of coverage, and the fee is based on the home’s selling price. The builder may include this expense in the total price of your home.

What to expect when making a claim
There may be times when you find yourself needing to make use of both your home insurance and your builder’s warranty. For example, if you have a basement flood that’s caused by a construction defect, you could work with the builder to address the defect through their warranty and make an insurance claim to address any property damage to furniture or personal belongings.

In general, if you identify a potential issue with the home, notify your builder about the issue and give them an opportunity to address it and be prepared to work with them to schedule repairs and give them access to your home. Keep in mind that in general, the builder’s warranty will cover defects in work and materials, but not damage or issues resulting from normal wear and tear caused by the homeowner. If you’re not sure if the issue is covered by the warranty, Tarion can assess your claim and provide guidance on whether the item might be covered.

Most of the time, homeowners and builders are able to resolve warranty matters between them. But if any challenges or disputes arise, Tarion is here to help and can step in to assist. 

Know your responsibilities as a homeowner
A home is one of life’s biggest purchases, and understanding your warranty rights and responsibilities is an important part of protecting yourself as a consumer. Unlike home insurance, you don’t need to shop around for a new home warranty, but plan to take the time to learn what it covers both before and after the home is completed, and how the warranty claim process works.

Find more tips and information about the builder’s warranty at Tarion.com.