Home warranties and homeowners’ insurance both promise some form of protection. But when it comes to homes, these two terms have very different meanings. Every homeowner should know what each of them means so they can make an informed decision when choosing one. Let’s explore the difference between a home warranty and homeowners’ insurance in depth.
What is a Home Warranty?
When you make an offer on a new home, your real estate agent will most likely suggest you ask the seller to provide a home warranty. A home warranty is a policy or plan that covers the cost of home repairs and replacement of major appliances and home systems caused by normal wear and tear or old age.
Home warranties last for a predetermined period, and homeowners usually prefer one-year plans. You may pay up front for a year or opt for a monthly payment, but the costs can vary significantly depending upon what your plan covers.
What Does a Home Warranty Cover?
Home warranty coverage varies from company to company, but all providers cover some basic built-in systems and major appliances. Most home warranty companies also allow you to pick and choose what appliances or systems you want covered under your warranty plan. You must carefully read the fine print in the home warranty contract so that you’re aware of all inclusions and exclusions.
Commonly covered home appliances include:
- Refrigerator
- Microwave
- Clothes washer and dryer
- Dishwasher
- Cooktop/range/stove/oven
- Garbage disposal
- Air conditioner
Commonly covered home systems include:
- HVAC system
- Ductwork
- Plumbing
- Water heater
- Electrical
What Doesn’t a Home Warranty Cover?
Home warranties repair or replace items damaged as a result of everyday use. They generally won’t cover repairs caused by misuse or poor maintenance.
Here’s a list of items a home warranty does not cover:
- Damage caused by pre-existing conditions
- Items that are still under the manufacturer’s warranty
- Secondary damages
- Damage due to improper installation or modification of an item
- Accidental damage
What Does it Cost?
Home warranties have two kinds of fees – a service fee and a monthly or annual fee.
The service fee is what you pay each time a technician makes a house call to repair the covered appliance or system. This fee ranges from $50 to $150 per service call.
The monthly or annual fee is influenced by factors such as the place you live and the kind of plan you buy. It typically ranges from $350-$1,500 per year. It’s a fee that you pay to access the discounted service calls. The higher your monthly or annual fee, the lower the service call fee will be, and vice versa.
Who Should Get It?
A home warranty is recommended for people who:
- Don’t like the hassle of finding a service technician on their own each time an appliance or system goes out of order
- Have HVAC systems or old appliances in their home
- Want security against big expenses
What is Homeowners’ Insurance?
Homeowners insurance protects its buyer from damage and loss caused by all the covered perils. Those covered perils generally include fire, theft, and storm damage. If you have a mortgage on your home, as most homeowners do these days, your mortgage lender will require you to purchase homeowners insurance.
There is a variety of home insurance coverage you can choose from. The common ones include:
Structure of the home: Your policy covers repair or replacement of anything that affects your home’s structure if it’s caused by a peril covered in the homeowners’ insurance policy. Most policies offer additional coverage for tool sheds, garages, gazebos, and decks.
Personal belongings: Homeowners insurance policy covers your clothes, furniture, or other personal belongings if they’re destroyed by a covered peril or stolen. So, if you own expensive items, you may need special protection as well.
Additional living expenses: If your home is uninhabitable because of a disaster or covered peril, the insurance pays for meals, hotels, or other living expenses.
Liability protection: This protects you against lawsuits for property damage or injuries to other people.
What Does Homeowners’ Insurance Cover?
Home insurance pays for everything caused by outside forces, from weather to vandalism. The most common perils outlined in a home insurance policy include:
- Fire and smoke damage
- Theft
- Certain weather damage, such as caused by lightning or wind
- Explosion
- Malicious mischief or vandalism
- Falling objects, for example, tree
- Ice, snow or sleet weight
- Damage by an aircraft or vehicle
- Personal liability of policy owner for injuries to other people or their property, for example, for dog bites, falling trees, or home accidents
If your home is damaged or destroyed, homeowners insurance rebuilds or replaces your loss.
What Doesn’t Homeowners’ Insurance Cover?
Most homeowners policies do not cover:
- Loss or damage caused by natural or human-related floods and earthquakes
- Home systems and major appliances
- Damage from everyday wear and tear of items
- Vermin damage
What Does It Cost?
The cost of insurance depends on many factors, such as the area or climate you live in, the value of your personal belongings, your home’s size, condition, features, and their rebuilding costs. Your history of insurance claims and the coverage limits you choose also influence the cost.
On average, homeowners insurance costs between $300-$1,000 a year. Homeowners will need to pay a fixed amount of money as a deductible before the home insurance company works on a claim.
Who Should Get It?
Homeowners insurance is best for people:
- Who want financial security
- Who are taking a loan on a home purchase
- Who wish to safeguard their home against every possible damage
So, What’s the Difference Between Homeowners’ Insurance and a Home Warranty?
A home insurance policy and home warranty contract work in almost the same way. The main difference is in what they cover. Home warranties cover home repairs and replacements of appliances and systems caused by daily use, while homeowners’ insurance pays for structural damages and personal property losses from events like fire or theft.
Another difference would be that home insurance is required for every homeowner who has a mortgage on their home, but a home warranty plan is rather optional.
Here’s a summary:
| Coverage/Requirement | Home Warranty | Homeowners’ Insurance |
|---|---|---|
| Covers home appliances | ✅ | ❎ |
| Covers home systems | ✅ | ❎ |
| Required for mortgage holders | ❎ | ✅ |
| Requires service fee | ✅ | ✅ |
| Requires monthly or annual fee | ✅ | ✅ |
| Covers natural disasters | ❎ | ✅ |
| Covers fire, burglary and other outside factors affecting personal belongings and home structure | ❎ | ✅ |
| Legal requirement for homeownership | ❎ | ❎ |
| Liability protection | ❎ | ✅ |
| Transferable in case you sell the house | ✅ | ❎ |
Should You Have Both Home Warranty and Homeowners’ Insurance?
Owning a home comes with tons of responsibilities, especially if you have old systems and appliances. Even simple replacements and common emergencies can create financial hardships.
Purchasing both a home warranty and homeowners insurance can offer protection against all major damages to your property, and a home warranty would fill in the gaps by covering minor repairs or replacements. This way, you as a homeowner can have peace of mind that you won’t be hit with heavy bills and expenses in case of a misfortunate event.
Now that you know the difference between a home warranty and homeowners’ insurance, you’re certainly equipped with the knowledge to make the right decision. Should you need any assistance through the process, our professionals are just a tap away!
Main Image Credit: Evy Prentice / Unsplash
