Your investment in your home, both in time and money, will give you a new appreciation of how important it is to protect your house. There are critical differences between a home warranty and insurance. It’s important to know where the lines are so there aren’t any unpleasant surprises if something happens to your exterior or appliances that you think you’re covered for and aren’t.
Homeowner’s insurance is mandatory for most of us. In comparison, a home warranty is optional, which might make it seem like an unnecessary added cost. However, there are some compelling reasons to consider home warranty vs. insurance — we’ll break down the details below on the differences between home warranty and insurance.
What Is Home Insurance?
The most important thing to remember about home insurance is it covers you in case of damage that’s out of your control. These could result from accidents, criminal actions like break-ins, and damage due to flooding or other natural disasters.
Most lenders will require you to have homeowner’s insurance or landlord insurance before approving you for a loan. On the flip side, a home warranty isn’t a mandatory part of the process.
While reading through your home insurance policy might not be the most scintillating way to spend your time, it’s critical. Knowing what your home insurance covers will help you avoid a scramble during an already stressful situation. For example, if your dishwasher malfunctions and floods your home, will home insurance cover the cost of repairs? Are you covered if a hail storm and your siding is damaged? Reading your policy will mean you know the answers ahead of time.
Home insurance policies are renewed yearly and depend on a variety of factors. These could be the cost and location of your home, and costs vary between $500 and $3000.
The best scenario is that you never need to make a home insurance claim. You can just rest easy knowing that it’s there to protect you. However, that’s not always the case. If your home does sustain damage and you need to make a claim, here’s how the process will look:
- An insurance claims adjustor will come to your home in person to assess the damage.
- They’ll also check your social media platforms, which is why it’s important to understand the connection between social media and home insurance, and always be honest in your home insurance claims. You could be in the hot seat if you make a false home insurance claim and have anything on your social media that shows your claim wasn’t legit.
- Once your claim is approved, you will pay your deductible. Your deductible is a pre-determined fee included in your policy — essentially, it’s a fee for submitting a claim. A lower deductible generally means higher payments and vice versa.
- Your insurance company will pay for the balance of the repairs.
- In conjunction with home insurance, consider if Home Warranty Licensing by State comes into play in your specific situation.
What Are Home Warranties?
Whereas home insurance covers accidental damage, home warranties protect you from paying the total cost to repair or even replace appliances or systems in your home that wear out.
Typical home warranties, also called home service contracts, cost between $300 and $1000 annually.
In most circumstances, your lender requires home insurance to approve you for a home loan. They want to know that the condition of their investment is insured. Home warranties cover things inside your home that your home insurance won’t cover but can still cost you a bundle when they have to be replaced due to normal wear and tear.
When you sign your home warranty contract, it will cover any appliance if it breaks down or needs replacing from wear. This coverage can include your washer and dryer, HVAC system, kitchen appliances, and more. The number of devices your warranty covers will depend on your specific policy and the amount you pay each year.
The only cost you’ll have to pay out of pocket is the service call, which is an average of $125 for most appliance repair professionals. Think of this as paying your deductible for a home insurance claim. Whether the technician needs to make a minor repair or replace the entire appliance, you only pay the fee for the service call.
Home Warranty vs. Homeowner’s Insurance
When protecting your most significant investment—your home—there are two safeguards: home warranty and homeowner’s insurance. At first glance, these two protective measures might seem like two sides of the same coin, aiming to assist you in times of need. However, they have different functions.
Differences between home warranty and insurance
- Home Warranty: Addresses wear and tear, breakdowns, and maintenance issues with appliances and systems.
- Homeowner’s Insurance: Protects against unforeseen events, including accidents, criminal activities, and specific weather events.
- Home Warranty: Optional and not typically required by lenders.
- Homeowner’s Insurance: Mandatory for most homeowners, often a prerequisite for securing a mortgage.
- Home Warranty: Involves a service call fee (similar to a deductible) and covers repair or replacement costs for specific household items.
- Homeowner’s Insurance: Requires payment of a deductible before covering expenses related to unforeseen damages.
- Home Warranty: You pay a service call fee, and the warranty covers the rest of the repair or replacement costs.
- Homeowner’s Insurance: Covers expenses exceeding the deductible, up to policy limits.
Duration and Renewal:
- Home Warranty: Typically annual contracts, renewable at your discretion.
- Homeowner’s Insurance: Yearly policies, influenced by various factors like home value and location.
How Home Warranty and Home Insurance Work Together
Rather than being redundant, these two protective mechanisms complement each other, creating a comprehensive safety net for your home. While homeowner’s insurance protects you against the unpredictable, a home warranty steps in to alleviate the financial burden of routine maintenance and repairs. When combined, they ensure that your home remains secure and well-maintained, addressing both the unexpected and the expected challenges that homeowners face.
Do You Need Both?
To qualify for a mortgage on your home, chances are that you’ll need homeowner’s insurance. A home warranty, however, is optional. You might think it’s an extra expense you don’t need to take on in addition to all the other costs that come with owning a home. However, there is a solid reason for having both, and here’s why.
Picture this scenario — you come home after an evening with friends, only to find that you have had your home vandalized. At first, it seems like the youthful pranks of neighborhood teens, but in the light of the following morning, you discover that what someone likely intended to be a joke has damaged the siding of your home or broken a window. What might have been shrugged off is now adding up and looking like it might cost you $2,000 or more to repair.
This scenario is where your home insurance comes into play. If your deductible is less than the cost of the repairs, you can make a claim, and your home insurance will cover the balance.
Scenario number two — you’ve owned your home for a few years and have a home warranty.
One day, not due to misuse, your washing machine stops working. New washing machines are $1,500 or more. Instead of having to rack up hours for a repair technician to come, you can call someone in your service network. You pay their call-out rate, likely around $125, and they come to assess the issue. Best case, it’s a quick parts replacement. Chances are, in this case, you would have paid more for a standard service tech to come out and do the same repairs. Worst case, you need an entirely new washing machine.
The great part of a home warranty is that, in either case, you pay the same amount. Like an insurance policy, you’ve probably paid into this home warranty for years without needing it. Now, when you need a major appliance replacement, you don’t need to worry about paying out of pocket.
Homeowner’s insurance vs. home warranty may seem like birds of the same feather, but when you look closely, they’re more like feathers on a bird — they work together to make the whole (in this case, your home) function side-by-side. You might not need both, but it always pays to know the difference to make an informed choice.