A home inspector received a call from an inspection client, who complained of settlement issues and a failing foundation. The sprinkler system had been slowly saturating the property’s foundation. So had the lack of downspouts attached to the gutters, which had led to more standing water seeping into the foundation. While the home inspector had called out both issues in his inspection report and in-person with the client, the claimant was adamant the inspector was at fault.
The home inspector didn’t contact their insurance company initially. Instead, he advised his clients to report the claim to their home warranty, which the home inspector had included as part of their inspection package. The clients’ warranty provider requested photos, repair quotes, and other information to determine coverage eligibility. When the warranty company finally reached back out to the clients, it was to say that foundation issues weren’t covered. Now more upset than before, the client returned to the home inspector to demand payment from him. Oops.
Quick responses lead to better outcomes. For this reason, insurance companies require inspectors to report claims in a timely manner. When the inspector chose not to report his claim to his carrier immediately, he risked his insurance company denying his claim when he needed them later. Furthermore, for issues that qualify as pre-claims instead of claims, failing to report the issue to their insurance provider robs the inspector of the free advice and assistance deescalating the situation that he’s already paying for.
Thankfully, when the home inspector did report his claim, he was still within his contractual reporting window. He still had insurance coverage. He called us at InspectorPro Insurance, and we defended the inspector against the allegations. Due to the inspector’s strong report and supporting photos, we were able to prove the inspector’s lack of liability to the client without going to court. Additionally, because we didn’t have to hire outside defense council, the claim closed at no cost to the inspector—not even his deductible.
In real scenarios like this one, the strengths and limitations of a warranty vs insurance become distinctly clear. Looking at this inspector’s experience, you may wonder:
- Are warranties the same as insurance? If not, what is the difference between insurance and a warranty?
- What does a warranty not cover?
- What is the difference between a warranty claim and an insurance claim?
- What is the relationship between a warranty and insurance? Can I carry E&O insurance and still provide a warranty to the homeowner?
In this article, we weigh the strengths and limitations of warranties vs insurance to help you determine if both products are a good fit for your inspection business.
What is the difference between insurance and a warranty?
First, it’s important to understand that insurance and warranties are not the same thing. While both are contractual agreements to protect against potential loss or damage, who, what, and when they protect differs. They differ so much, in fact, that we recommend looking at your insurance as a risk management tool and your warranty, if you have one, as a customer service tool.
Insurance protects you, the inspector, from financial losses due to your alleged negligence or accidents during a home inspection. As an inspector, there are two main types of insurance we recommend: errors and omissions (E&O) and general liability (GL). But, for the sake of comparison to warranties, we’ll focus on E&O insurance in this article. (You can learn more about these two essential types of insurance in our article “General Liability vs Errors and Omissions Insurance: What They Are and Why Home Inspectors Need Both.”)
A home warranty is different. Sometimes called a service contract, warranties are built to serve your inspection clients rather than you.
Some providers use the terms “home inspection guarantee” and “home inspection warranty” to describe their warranties. These nicknames can be misleading to both your clients and you.
“Home inspection guarantee” suggests that warranties protect inspectors and their clients against faulty or inadequate inspections. But that’s an E&O insurance policy’s job. Rather, a warranty pays a specific amount to repair or replace a covered component or appliance that stops working due to normal wear and tear. This encourages clients to use the warranty for minor complaints, instead of the inspector’s insurance.
Additionally, attributing the warranty to the home inspection or the home inspector with terms like “home inspection warranty” or “home inspector warranty” makes it sound like the warranty is for the inspector. It isn’t. Warranties cover the clients, not their inspectors. These terms can also misconstrue the purpose of the warranty to imply that it’s for negligent inspections, just like the “guarantees.”
Like insurance policies, warranties are unique to their providers and state regulations. Some warranties last for a few months, while others last for years. Some will cover structural and mechanical issues, while others exclude them entirely. Generally, warranties focus on smaller components like appliances.
What does a warranty not cover?
What a warranty does and doesn’t cover depends on your provider and policy. Most warranties cover the items listed in their contract and no other items. Some important things a typical warranty does not cover include:
- The home’s structure
- Clients’ or sellers’ belongings
- Injuries or damages to people or things caused by you during the inspection
Note that, just because a warranty covers an item doesn’t mean it will cover all of it. Most warranties have sublimits or financial caps for individual items. For example, let’s say your client blames you for their luxury cooktop failing. Your client reports it to their warranty provider, who says they’ll cover it—up to $1,000. The homeowner then contacts you, alleging you’re responsible for the additional $9,000 their high-end cooktop costs to replace.
Another thing that’s important to recognize is that warranties cover claims for a limited time. In our experience handling insurance claims, most allegations against home inspectors arise between six and 18 months after the inspection. Many warranties—even extended warranties—do not provide protection for that long. That’s one reason why inspectors should look at their warranties as customer service benefits for clients, rather than risk management tools.
Lastly, warranties aren’t homeowners’ insurance policies. Homeowners’ insurance covers big-picture, unexpected perils like fires and thefts. If you provide a warranty, encourage your clients to review both the warranty and their homeowners’ insurance policies to understand the differences. They’ll better understand who to call when they have a problem.
What is the difference between a warranty claim and an insurance claim?
When comparing claims filed against a warranty and insurance, the difference is who’s making the call and who’s receiving the benefit. You report insurance claims and receive insurance coverage. Your client reports warranty claims and receives warranty coverage.
Each has a policy that details expectations for both you and your carrier. Despite some warranties being called home inspection guarantees, coverage for claims only comes if the claim meets the warranties’ criteria. Since a lot of confusion can come from terms like “home inspection guarantee” and “home inspection warranty,” we advise against using these terms with your clients and in your marketing.
To learn more about insurance claims processing, read this article. To learn more about warranty claims and reporting, tell your clients to read their warranty.
What is the relationship between a warranty and insurance? Can I have both?
Yes, you can carry E&O insurance and still provide a home warranty to clients. While you’re paying for both, you are only responsible for and the beneficiary of the insurance policy. Your client is the beneficiary of the warranty. It’s your job to report your own insurance claims, and it’s your client’s to report warranty claims.
Let’s return to the luxury cooktop example. You report the claim to your insurance provider. If the cooktop was working at the time of the inspection, your insurance company would argue you were not responsible for the cooktop failing after the inspection. After all, most standards of practice (SOPs) exclude determinations of life expectancy, and it’s impossible to predict the future. Due to your lack of fault, your insurance provider would attempt to close the claim without paying the client by issuing a letter outlining your responsibilities as a home inspector. Meanwhile, you encourage your client to call the warranty company, and they do. After paying their deductible to the warranty provider, they could receive the $1,000 in coverage for their cooktop.
To manage risk while providing a warranty, we encourage inspectors to set appropriate expectations. Explain that the warranty is not a guarantee and does not change your inspection’s scope. Give examples of what your warranty may and may not cover. And ensure they have the right contact information for the warranty company so they can contact them directly with questions and claims.
Warranty vs Insurance: What to Buy
While you don’t need a warranty to inspect, many states, associations, and franchises do require you carry E&O and general liability insurance. But insurance coverage is always helpful, even if you don’t have a government or third-party mandating it. Insurance offers financial protection, credibility, and comfort. It allows you to share the risk with someone else so, if you do receive a complaint–meritless or legitimate—you have legal and monetary assistance.
As for warranties, they’re optional. A warranty can be a great additional service to your clients. By safeguarding against incidentals—most warranties’ specialty—you may feel more peace of mind and could discourage clients from looking to you for system and component failures post inspection. If you choose to use your warranty as an advertising tool, you may also improve your marketability. The choice is yours.