What’s the Difference Between Home Insurance and a Home Warranty?

Much like a car purchase, buying a home is a physical investment. Just as you protect your car against accidents with automobile insurance, home insurance and a home warranty protect both your property and money.

Home Warranties

What is a Home Warranty?

A home warranty can be thought of as a service contract. A home warranty covers repairs and replacements of appliances and home systems due to normal wear and tear. Home warranty companies work with home service providers, such as plumbers, electricians, or electrical contractors.

How Does it Work?

In exchange for a monthly or annual fee, you receive discounted repair or replacement services for home appliances or systems that are covered in your plan.

For example, if your stove were to stop working, you would contact your home warranty provider and include a claim that states the problem. After your provider receives your claim, they would then send over a professional to assess the damage. The assessment report would include the extent and potential causes of the appliance damage. If your home warranty contract covers the exact damage, the warranty provider employs a contractor or trained professional to repair or replace the stove.

What Does a Home Warranty Include?

Most home warranty companies offer three different types of plans: Appliance Plans (washers and dryers, refrigerators, etc.), System Plans (such as HVAC or plumbing), and Hybrid Plans that cover a combination of Appliance or System Plans. The exact covered services depend on the warranty company and the contract, so experts advise people to read their contracts carefully.

A home warranty has aggregated limits as well, or a total amount of money the company will pay for all covered losses during a certain time period, usually up to a year. A plan may cover up to $5,000 per item with an aggregate limit for all claims of $15,000.

Deciding if a Home Warranty is For You

While optional, a home warranty can be beneficial for homeowners looking for reassurance that they can move in without worrying about spending more money for add-ons or surprise repairs. Even if a person has money set aside for an appliance repair, a faulty HVAC system could cause serious financial hardship.

Home Insurance

What is Home Insurance?

Home insurance, also known as homeowners insurance, is a form of property insurance that protects the home itself, your belongings, and your liability. While not required legally, most mortgage lenders require home insurance to protect their investment.

What does Home Insurance Cover?

Most home insurance policies cover four types of incidents: interior damage, exterior damage, loss or damage of belongings, and liability for any injury that arises on the property. This includes the home itself as well as the porch, garage, fence, and other structures on the property, such as a tool shed. While each policy has exceptions, typical home insurance coverage includes damage resulting from fire, smoke, theft, or weather conditions like lightning, wind, or hail.

If we examine the broken stove example again, your home insurance would cover any potential fire or smoke damage that occurred while your home warranty would cover the repair of the appliance itself.

Both home insurance and home warranties assist homeowners in protecting the property and home itself from a variety of problems and costs. As always, remember to carefully examine and clarify policies and contracts before agreeing to them. If you have any questions concerning the homebuying process, contact us. You’ll be put in touch with a knowledgeable Loan Originator that will happily walk you through the process and find the best home solutions for you and your family.