Home Warranty vs. Home Insurance: What's the Difference?

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Owning a home is a dream come true for countless Americans. It can be the ticket to the middle class and stability for millions of families, but is also usually the biggest investment most people ever make.

Home warranty contract

These costs don’t end with just the mortgage—owning a home also means dealing with large, unexpected home repair bills, in addition to homeowners insurance, property tax, landscaping and gardening costs, and more. Home repair bills alone can be a major expense, especially when they entail repairing and replacing major systems and appliances within the home.

The good news is that if you play your cards right you don’t need to foot the bill for all of these expenses on your own. A home warranty can provide you with help when the sudden costs of home ownership rear their ugly head. If you’re unclear about the difference between Home Insurance and Home Warranties, you’re not alone. In this review, we’ll break down the differences.

Home Insurance and Home Warranty...Similar, But Oh So Different

 Home WarrantyHome Insurance
What does it cover?Repairing major home systems and appliances like A/C, refrigerator, water heaterDamage to house from fire, natural disasters, theft, weather
What's the average cost?As low as $30/month and around $350/year, to around $1000 per yearAverage annual cost ranging from $337 (HI) to $3,575 (FL)
What's the deductible?A $60 service fee at time of maintenance is usually standardIn most states it’s at least $500 and can be significantly more

The main way that home insurance and home warranties differ is what sort of coverage they provide:

What does home insurance cover?

  1. Home insurance provides coverage to repair or replace your home and other personal belongings if there is damage caused to the house by fire, theft, weather, natural disasters, and the like. Home insurance does not cover repairs to systems within the house, such as an A/C system that’s on the fritz or a hot water heater that gives out.
  2. There is no federal agency that monitors insurance companies, rather it is the individual states that perform the oversight, for the most part to make sure that insurance companies have the financial capability to pay customers’ claims. These agencies also investigate complaints by customers and are responsible for making sure that insurance companies conduct their business lawfully and fairly.
  3. If your home is damaged by a fire, a natural disaster or the like, home insurance will pay to replace or repair the contents that were harmed, including appliances, clothing, and any jewelry that you had insured. These plans can also provide coverage if you are the victim of a burglary.
  4. Most home insurance plans also cover personal liability. How does this work? If there is an accident at your home and someone is hurt, the insurance can cover the costs that exceed the person’s health care coverage. The insurance could also cover the person’s pain and suffering and loss of wages, as well as legal costs and more. And while this might go without saying, liability insurance typically won’t cover any injuries on your property that were not accidental.

What does a home warranty plan cover?

If a lightning storm sends a power line or a tree branch crashing into your roof, a home warranty plan isn’t going to help you replace the shingles.

Home warranties are better thought of as “appliances insurance”—basically a cheaper way to purchase extended warranties for each appliance.

Home warranties can help cover the costs of major systems and appliances if they start to breakdown. The specifics vary from plan to plan, but typically the warranty (such as Choice home warranty) will cover appliances and systems you use everyday, including:

  • Heating, ventilation and AC systems
  • Water heater
  • Plumbing and electrical systems
  • Washer/Dryer
  • Major kitchen appliances such as dishwasher, refrigerator, oven, built-in microwave, garbage disposal or trash compactor. (Home warranties typically exclude small consumer appliances like coffee makers and toasters.)

Further differences between home warranty and home insurance

1. Home insurance requires underwriting

When you apply for a plan, an insurance underwriter will come to your home to judge the “risk” that should be applied to the insurance plan. This is typically based on factors such as the home’s age, location, construction, contents, and history. These factors determine the premium and the price of the insurance plan.

Home warranties don’t require any sort of underwriting. Some companies may require an inspection, but this will not change the premium you pay. The home warranty plan covers specific appliances and home operating systems that you have at the time you sign up, with a set price that doesn’t fluctuate based on an underwriter’s assessment.

2. Home insurance renews automatically

As long as you continue to pay the premiums, your home insurance policy will renew automatically. This is generally not the case for home warranties, which are set for a specific period of time and will lapse if you do not renew them. However, it is wise to make sure in your contract that there is no auto-renewal. Many home warranty companies offer special discounts for new members, making it worthwhile to shop around when your current home warranty plan is about to run out.

Should You Purchase Both Home Insurance and a Home Warranty?

Home insurance can be a true godsend in the event that your home suffers some sort of calamity like a fire, which you would not be able to recover from on your own. Such events can still take an emotional toll, but if your home is ensured you will have the financial support to rebuild and get things back on track. It doesn’t have to be catastrophic either—a burglary can be a deeply disturbing event that leaves you feeling vulnerable and violated. With home insurance though, at least you won’t also have to figure out how to pay to replace whatever was stolen.

And while catastrophic damage to your house may be less frequent, having a home warranty means you can get assistance for the repairs and replacements that will be part of being a homeowner in the years to come. These costs can truly add up, and a home warranty can come in handy.

A house is typically the most important—and costly—investment any of us make, if we’re not including our children. With home insurance and a home warranty you can get coverage in the worst case scenarios and with those frequent—and often very costly—maintenance costs that are just part of being a homeowner.

Once you're ready, start researching to find out which home warranty company is the right choice to protect your property, your comfort and your peace of mind.

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