Home Warranty Vs. Home Insurance: What’s the Difference?
Owning real estate comes with important decisions, such as purchasing warranties and insurance. It’s easy to confuse a home warranty and home insurance. Both are important to homeowners, but they both cover very different things. It’s important that you understand the difference between the two so you can provide your home with the best coverage and put your mind at ease, especially if you’re buying a new home. Simply put, home insurance covers costs to repair your actual home and personal property. Home warranties cover costs to repair or replace major home appliances.
What Is a Home Warranty?
A home warranty is not home insurance. A home warranty covers repair work for and replacement of major appliances like washers, dryers, refrigerators, and even swimming pools. Furnaces, plumbing and electrical work, and air conditioning systems are also covered by home warranties.
Purchasing an appliance protection plan from a home warranty company is a great way to ensure your home is protected. Each plan has a predetermined level of protection and scope of coverages. Basic home warranties cover most appliances within your home. Purchasing a more advanced home warranty can cover more appliances, even those outside your home, like a swimming pool.
How Does a Home Warranty Work?
When something covered by a home warranty breaks or wears down, the home warranty company sends a contracted service provider to your home to assess the problem. Damage needing minimal repairs can happen on the first visit. More substantial repairs or replacements must be approved by the home warranty company. Home warranties cover the parts needed for repair and replacement if the damage is too great. Each visit by a service provider costs a certain amount that you pay.
Each home warranty contract is different. Your individual contract will specify what is and what isn’t covered. For an item to be covered by a home warranty, it must be within the main foundation of the home, unless specified in the contract (things like septic tanks, wells, and sometimes pools). Make sure to check with the home warranty company that you have coverage for all the items you want.
How Does a Home Warranty Benefit Me?
Home warranties allow homeowners to save money. Repairing or replacing appliances because of damage or age can easily cost several thousand dollars. With home warranties, homeowners pay the cost of the warranty, plus a service fee for each visit by a repair technician. If repairs or a replacement is needed, the home warranty company provides those at a discounted rate to the homeowner.
Having a home warranty increases the value of your home. If you’re looking to sell your home, getting a home warranty can attract more buyers, because the warranty can be transferred when a home is sold. Home buyers will feel more confident about buying a home with a home warranty because it eliminates the worry of surprise repairs.
What Is Homeowners Insurance?
One of the biggest differences between homeowner’s insurance vs. home warranties is how a home insurance policy is required by most banks before you can get a mortgage on a home. Mortgage lenders won’t sign off unless you have insurance. Homeowners insurance often covers damage from wind, fire, lightning strikes, hail, theft, and vandalism. A homeowner’s insurance policy covers the foundation of your home, protects your personal property from theft, and reduces liability from third party involvement.
A homeowner’s insurance policy is reviewed annually and can cost between $300-$1000. When you need to file a claim for your homeowner’s insurance policy, you pay a deductible and your policy covers the rest.
If you need to take advantage of your home insurance policy, an insurance adjuster will visit your home and fill a repair or replacement claim on the damaged items. When your insurance company approves the claim, they will charge you the deductible cost and pay for the balance of the repairs. The amount you pay for your deductible affects your yearly policy cost. A higher deductible results in a lower annual renewal fee.
Why Should I Have Both Homeowners Insurance and a Home Warranty?
Now that we’ve nailed down the definition differences between homeowner’s insurance vs. home warranties, let’s talk about why they’re useful. Homeowner’s insurance and home warranties both cover different things. Having a home warranty and home insurance is the best way to ensure maximum protection for you and your home.
Home insurance policies typically cover:
- The structure and contents of your house
- Personal property like furniture, clothes, computers, TV, etc.
- Jewelry coverage varies by plan. It may be itemized at full value, covered up to a certain amount, or not covered at all
- Theft, lightning, vandalism, fire, windstorm, hail, falling objects such as a tree
- Living expenses if your home is uninhabitable because of a natural disaster
- Liability claims if someone is injured on your property and they decide to sue you
Home warranties typically cover:
- Air conditioning
- Heating and electrical systems
- Appliances like refrigerators, dishwashers, washers, and dryers
More comprehensive plans are available and can be extended to things like:
- Gas and water leaks
- Sump pumps
- Sprinkler systems
- Pool equipment
- Well pumps
Since there’s a difference between home warranty and home insurance, it’s very useful to have both. Having a home warranty on top of your existing homeowner’s insurance policy provides more coverage to your home, appliances, and valuables.
Things to Consider When Choosing a Home Warranty Plan
Purchasing a home warranty and home insurance isn’t as straightforward as we’d like it to be. It’s important to make sure you’re buying the best home warranty or insurance for your needs. Consider your lifestyle, how many people live in your home, and whether or not you have pets are just a few important things to think about before you purchase a home warranty or homeowner’s insurance.
Ease of Submitting a Claim
It’s also important to think to consider the ease of submitting a claim. Be sure to read your policy and warranty thoroughly to make sure you understand everything. You don’t want your repair or replacement to be stuck behind mountains of paperwork and months of cutting through red tape. You want a home warranty and insurance plan that can take care of you as quickly and painlessly as possible.
Don’t forget to think about costs of purchasing and renewing a home warranty and home insurance. Home warranties generally cost between $300-$500 each year. This cost covers the repair or replacement of your home’s appliances and systems. These warranty plans are renewed annually, and additional coverage for pools, washers, and dryers, and other complex systems can be added for an extra cost.
Homeowner’s insurance coverage varies based on the extent of coverage, location of the property, and according to state codes. Typically homeowner’s insurance can be purchased for between $300-$1000 annually.
Conclusion: A Home Warranty Complements Homeowners Insurance
Your home is one of your greatest investments. It’s important that you treat it like that, and protect it as well as you can. Having a home warranty in addition to your existing homeowner’s insurance policy is essential to having peace of mind. Having a home warranty will ensure that you and your home will always be taken care of.