Arizona Real Estate Broker Exam — All Questions

What does a home warranty typically cover that a homeowner's insurance policy does not?

• a.Breakdown of covered systems and appliances✓
• b.Fire and smoke damage to the dwelling structure
• c.Loss of personal belongings after a burglary
• d.Liability for injury to a guest on the property

A home warranty is a service contract covering the repair or replacement of specified systems and appliances when they fail through normal wear, subject to a service fee and exclusions. A homeowner's insurance policy instead indemnifies against sudden accidental loss from covered perils such as fire, and includes personal property and liability coverage. Buyers frequently hold both, because neither substitutes for the other.

What does replacement cost coverage pay compared with actual cash value coverage?

• a.The outstanding balance of the mortgage loan
• b.The cost to rebuild without deducting depreciation✓
• c.The original purchase price stated in the policy
• d.The property's current market value at the time of loss

Replacement cost coverage pays what it costs to repair or rebuild with materials of like kind and quality, without a deduction for depreciation. Actual cash value coverage pays replacement cost less depreciation, so an older roof recovers less. Neither is measured by market value, purchase price or loan balance, since the land under the structure is not what burns.