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As a homeowner, it’s important to know the difference between a home warranty and home insurance. These products provide separate services and it’s helpful to understand the differences between them.
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Home Warranty vs. Home Insurance: 5 Key Differences
- Home insurance covers damage and loss, while a home warranty covers replacement and repair.
- Home insurance pays for structure, belongings, and expenses. A home warranty pays for appliances and systems.
- Mortgage lenders require home insurance, but a home warranty is optional.
- Home insurance provides liability coverage, and a home warranty does not.
- Home insurance has a deductible, and a home warranty has a service fee.
A home warranty is not the same as home insurance. A warranty is purchased through a home warranty company and helps with costly repair or replacement of appliances and home systems that break. A home insurance policy pays for damage or replacement of your home and personal property during disasters such as storms or fires.
What Is a Home Warranty?
A home warranty is a service that provides repair or replacement of appliances or home systems when they stop working. The warranty is paid for through monthly or annual fees.
When something breaks in the home, the home warranty company will send out a technician to troubleshoot the problem, ultimately replacing or repairing the issues as needed. The homeowner will pay a flat service charge or deductible for the technician to come out, and the warranty covers all other costs. Sometimes, a home warranty is included when you buy a home, but it can also be purchased at any time.
Some of the best home warranty companies are:
- American Home Shield
- Choice Home Warranty
- Cinch Home Services
- Select Home Warranty
- First Premier Home Warranty
- AFC Home Club
- Liberty Home Guard
- First American Home Warranty
- ARW Home
Having a home warranty is not mandatory. It is an optional service that homeowners can choose to purchase for their home maintenance needs.
What Is Homeowners Insurance?
Homeowners insurance is an insurance policy designed to protect your home and belongings against accidents and disasters such as fire, theft, or storms. A home insurance policy covers the house's structure and its contents (including your personal belongings). The policy can also provide liability coverage which protects you if someone is injured while on your property.
The policy is paid monthly or annually. Specific coverage levels and deductible amounts will affect policy costs, so it’s good to shop around to get the best quote. Mortgage lenders require home insurance to obtain financing for a home.
Home Warranty vs. Home Insurance: 5 Key Differences
Although their purpose sounds similar, there are several key differences between home insurance and a home warranty. Understanding the differences will help you decide how to protect and maintain your home.
1. Home insurance covers damage and loss, while a home warranty covers replacement and repair.
Home insurance is designed to protect you from unforeseen forces that can harm your home, such as a fire, a storm, or criminal activity such as theft or vandalism. If you lose a portion of your roof thanks to a nasty thunderstorm, you will want to call your home insurance company to file a claim. If your claim is approved, insurance will pay for the repairs (after you pay your deductible amount).
A home warranty will pay for appliances and systems that fail due to wear and tear or age. Let’s say your air conditioner stops working. You can call your home warranty company, and they will send out a technician to look at the HVAC system. If it needs replacing, the warranty will cover the costs of having a new HVAC system installed. You will just pay the flat service fee or deductible established in your warranty details.
2. Home insurance pays for structure, belongings, and expenses. A home warranty pays for appliances and systems.
Home insurance will pay to repair damage or rebuild a destroyed house. The policy also covers sheds, garages, decks, and any other structures on the property. Home insurance reimburses for loss of personal belongings. It can also pay for temporary housing if a disaster displaces you from your home.
A home warranty pays for a home system or an appliance within the home. Examples of covered items are heating systems, dishwashers, plumbing, and electrical systems. Most plans offer the ability to add-on service for a pool or hot tub.
3. Mortgage lenders require home insurance, but a home warranty is optional.
A mortgage lender needs proof of insurance before they pay out money to purchase your home to absolve them from any responsibility for home damage or liability. That’s why homeowners insurance needs to be in place and effective on the closing date for a real estate transaction to go through.
On the other hand, a home warranty is not required. Homeowners are free to purchase a warranty if they wish and can choose any amount of coverage that suits their individual preferences.
4. Home insurance provides liability coverage, and a home warranty does not.
When purchasing auto insurance, you may have heard of liability insurance, but why do you need liability protection on your home? Liability coverage is necessary to protect against accidents in and around your home.
For example, liability coverage helps to protect you from legal costs that can arise if someone is injured at your house and files a lawsuit.
Home warranties only cover home appliances and systems and are not designed to pay money to people or legal fees.
5. Home insurance has a deductible, and a home warranty has a service fee.
If you file either a home insurance claim or a home warranty claim, you will still need to pay some money out of pocket.
When making a home insurance claim, you will have to pay a deductible amount ranging from $500 to $2,000, depending on the limits you selected when you set up the policy. The insurance company pays the remaining balance after the deductible.
If you file a home warranty claim, you will be charged a flat-rate service fee for the technician to come out and troubleshoot the problem. The warranty covers the cost of repair or replacement.
Do I Need a Home Warranty If I Have Homeowners Insurance?
When purchasing a new home, finances can get tight. It makes sense to wonder if you need to have both a home warranty and homeowners insurance.
Insurance will protect you from things you can’t plan on, like natural disasters and fires. And a good home warranty plan will prepare you for the inevitable equipment failures ahead. Appliances and systems will need repair or replacing, and having a warranty in place can save you unexpected out-of-pocket costs.
These things tend to happen at the worst time. You won’t be caught off guard by a broken furnace or a damaged roof if you have both a home insurance policy and a home warranty to protect your home. The security of having both a home insurance policy and a home warranty plan will provide complete home coverage.
When To Use a Home Warranty vs. Home Insurance
Since both programs are similar, it can be difficult to determine when the right time is to call the insurance company or call the home warranty company. These are everyday situations and who to call for help.
Appliance or System Failure
If something in your home has stopped working correctly or isn’t working at all, it is time to call your home warranty company. Some common items that your home warranty should cover include:
- Refrigerator
- Dishwasher
- Clothes washer/dryer
- Furnace
- HVAC system
- Plumbing
- Pool/hot tub
Appliances and systems will all fail one day due to wear and tear. Having a home warranty guarantees that you can pay for the inevitable maintenance issues that go along with owning a home.
Damage Due To Disaster
Insurance protects policyholders from things they can’t predict will happen. Home insurance pays for damages and losses that occur in the unfortunate event that a disaster hits your home. What types of tragedies does home insurance protect you from?
- Fire
- Hail
- Windstorms
- Hurricanes
- Tornadoes
- Explosions
- Extreme Cold
- Theft
Call your insurance company to file a claim if your home sustains any damage due to one of these types of disasters.
You can’t predict what will happen in the future. That’s why home insurance is critical to have in place to protect your most expensive and cherished asset – your home.
Accident
Contact your home insurance company if someone is injured on your property and files a lawsuit against you. Any type of injury someone sustains on your property, including involving your pets, should be claimed. Your home insurance may cover your legal expenses or any monies due to the person filing the suit.
Homeowners Insurance vs Home Warranty
Although homeowners insurance and home warranty might sound like the same thing, they are two distinctly different services. Home insurance protects your home when disaster and accidents happen. A home warranty protects your home systems and appliances from age and normal wear and tear by covering costs of repair or replacement.
When you buy a house, a mortgage lender will require you to have homeowners insurance in place before you can take possession of the home. It is not necessary to have a home warranty during the home buying process. Sometimes, a seller will include a home warranty in the sale of their home to attract buyers. However, homeowners can purchase a home warranty plan at any time.
Home insurance covers the structure of the house and your personal belongings if they are damaged or destroyed during storms, a fire, or criminal activity. Liability coverage, included in most policies, protects you from legal action if someone is hurt while on your property. When you make a home insurance claim, you will pay a deductible, and the insurance will cover the rest.
A home warranty pays for the repair or replacement of items such as kitchen appliances, plumbing, furnaces, and air conditioners when they fail. You will pay a flat-rate service fee for a technician to come out and troubleshoot the problem, but the rest of the cost is covered in your warranty plan.
There are many companies to choose from when getting homeowners insurance or a home warranty, so it’s a good idea to shop around for the best price and coverage levels.
