Home warranties and homeowner’s insurance require annual premiums and protect you from costly repairs.
However, the main difference is what they cover. A home warranty protects your home’s internal systems and appliances like an HVAC or dishwasher. Homeowner’s insurance, in contrast, generally covers your home’s structure and personal property.
The right combination of home warranty and homeowner’s insurance ensures you’re covered in any situation and reduces the risk affiliated with your largest purchase — i.e., your home.
This article discusses home insurance and warranties, their differences, and their similarities.
What is home insurance and what does it cover?
Home insurance is a contract between you and your insurance company. You pay your insurer a predetermined premium. In exchange, they cover the repair, rebuilding, reimbursement, or replacement costs related to specific perils that affect your home.
For example, suppose a fire breaks out in your detached house. A home insurance policy provides compensation to rebuild or repair your house, replace the contents inside, and provide you with additional living accommodations. Your policy limit ultimately limits this compensation.
Overall, your homeowner’s policy covers four major areas:
- Repair or rebuilding costs: Your insurer can compensate you for any damage to your home resulting from named perils such as storms, fires, floods, and more. You’re then not paying out-of-pocket when a windy day causes a tree to fall onto your roof.
- Contents coverage: Insurance also covers the replacement or repair of your personal property. This includes times when that tree branch might further damage your office set up in the attic loft or if you come home from a tropical vacation to find that burglars made off with all your valuables.
- Legal liability: When having guests over, there’s always an opportunity someone might trip due to a loose floorboard or injure themselves because of a broken railing. These situations could result in medical costs that your guest expects you to pay. The right insurance covers the cost of damage awards and legal fees in this scenario.
- Additional living costs: Situations like fires or floods leave your house unlivable until necessary repairs are made. During this time, you might need to find a hotel or Airbnb. Your insurance can also pay for these costs.
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What is a home warranty and what does it cover?
A home warranty is a contract between you and a home warranty company. For a yearly fee, the home warranty company calls their repair people to fix your broken appliances and systems when you’re in need.
There’s generally a service fee each time you call, but it’s less than what you would otherwise pay. A home warranty also saves you the time from finding a reputable repair person.
Such a warranty covers the repair and replacement of appliances (stove, laundry machines, dishwasher, etc.) and systems (heating, air conditioning, HVAC, etc.) in your home which result from wear and tear. Home insurance explicitly excludes wear and tear issues from its coverage. So, the combination of insurance and warranty don’t generally overlap.
Your home warranty won’t pay for damage caused by a broken appliance or home system. For example, if the washing machine leaks and causes water damage to your basement, the home warranty won’t cover this water damage. Your home insurance may or may not protect you in this situation.
Is a home warranty the same as homeowner’s insurance?
Home warranties and homeowner’s insurance are different. They provide different coverage. Additionally, home insurance is usually mandatory, and you can often transfer a home warranty from a buyer to seller in a home transaction.
1. Different Coverage
The main difference between a home warranty and insurance is the coverage. Home insurance generally covers structural damage and personal property. Instead, home warranties cover the repair or replacement of home systems and appliances that fail due to old age.
Another way to consider the differences is that home insurance covers unexpected events like bad weather or an explosion. Home warranties cover expected events that result from the passage of time.
Remember, home insurance goes beyond replacements and repairs. It also protects you from the financial ramifications of legal liability and provides additional living accommodations.
2. Home insurance is usually mandatory
If you purchase a home with a mortgage, the mortgage lender requires you to have home insurance. This insurance protects the lender’s collateral (your home) on the mortgage. Otherwise, your lender might lose its collateral if a fire damages the property.
However, there are no parties or laws that require you to purchase a home warranty. Home warranties are available as an option to reduce specific risks.
3. You can transfer the home warranty to the next owner
Whenever you move into a new home, you need to purchase a new home insurance policy or update your existing one. However, you can transfer or take on a home warranty plan when you buy or sell a property.
Providing the home warranty might act as an additional incentive for buyers as a seller. This can reduce the buyer’s worry that appliances or systems might break down the second they move in.
As a buyer, you might want a home warranty with your home purchase because you’ve depleted your savings, and you don’t have enough to tackle unexpected costs.
How are home warranties and homeowner’s insurance alike?
1. Protect against expensive and unforeseen costs
Home warranties and insurance protect against unforeseen and expensive costs. Although you can expect appliances to face wear and tear, you’re not necessarily sure when it’ll break down. You might understand your ten-year-old stove is bound to break down soon, but you won’t know if it’s next month or next year.
Ultimately, both plans ensure you don’t suddenly face thousands of dollars in costs out of nowhere.
2. Deductibles and service fees
Home warranties and home insurance usually require an upfront fee to claim the policy. Home warranties charge a service fee when you call them for a repair. Then, home insurance policies often charge a deductible when you make a claim.
The service fee or deductible amount is listed in your contract with the warranty or insurance company.
Related: How much is home insurance?
3. You need to read the fine print
You need to read the fine print of any home warranty or insurance policy you buy. Not every warranty or policy is the same, so it’s valuable to consider what they cover and don’t cover.
Even if you purchase both, you could face gaps in coverage. Understanding these gaps lets you prepare for the worst-case scenario with tools such as an emergency fund.
Home insurance is critical to any home purchase. APOLLO Insurance can provide you with the best rates in record time. Get a quote and purchase home insurance online in under five minutes — all from the comfort of your own home.
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