Many new home buyers wonder, what is a home warranty and how does it compare to home insurance? It is important to note that these two products are far from being the same thing. The main difference between a home warranty and home insurance is what each of them covers.
Compare Popular Home Warranties and Home Insurances
Homeowners insurance may cover losses to covered property caused by:
Weather: Storms, fire, wind, hail, lightning, freezing of a plumbing system, weight of ice, snow or sleet
Non-weather: Theft, vandalism, riots, aircraft and vehicles
Accidental Direct Physical Loss:Water from plumbing, tearing/bulging of heating or cooling systems, artificially generated electrical current
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Home Insurance vs Home Warranty Comparison
What is it?
Home insurance concerns itself with the fundamentals of a home, both the interior and exterior. As a result of its importance, like car insurance, it is usually compulsory. This is because the house is an asset for the mortgage company, who needs the house to maintain its value in case they need to repossess upon failed repayments.
A home warranty is a service contract. It’s a type of insurance, but it isn’t home insurance. It’s never compulsory, and it usually concerns itself more with wear and tear as opposed to large-scale disasters.
What does it cover?
Accidental damage to the home or belongings due to theft, extreme weather, fires, some natural disasters.
There are four key areas that are covered: interior and exterior of a home, personal possessions in the event of theft/damage, and general liability surrounding the injury of a person while on the property.
The wear and tear of home systems and appliances. It either repairs or replaces these components/items when they are broken down.
Systems tend to include: heating, cooling, electrical, and plumbing.
Appliances tend to include: washers, dryers, fridges, cookers, and other kitchen items.
Who supplies it?
Home insurance companies, banks.
Home warranty companies.
What is the average annual cost of the policy?
Usually between $1,000 and $3,500.
Usually between $350 and $1,000.
What are the deductibles?
Usually scalable regarding the premiums.
If you pay a high annual cost of $3,000, your deductibles might be around $1,000. If you pay only $2,000 in premiums, your deductible will be significantly higher, like $8,000. It’s often a choice.
Deductibles are a lot cheaper. They range between $60 and $125 per service call. Usually, the higher the premium, the lower the deductible.
Do you need both a home warranty and home insurance as a homeowner?
Given how vastly different the two coverage is between them, it’s difficult to claim they’re mutually exclusive. Home insurance is a must, whether or not you are forced into it through the law or your mortgage company. Some things are worth protecting, and your home is, of course, one of them. How often you have claims depends on what state you live in (likelihood of theft and storms), but it’s necessary nonetheless, particularly as it covers fire and water damage. In the long run, it may help you save a lot of money.
The same logic tends to apply to home warranty insurance, although it doesn’t quite hold the same weight. Your home is nothing without your home systems to keep you comfortable, your appliances that make your life easier, and your environment that is cleaner and safer with them. The difference is that the potential cost of damage is less with systems and appliances than the structure of your home.
This balances out though, with lower premiums and far lower deductions. A $40 monthly payment with a $75 service call is a great deal if it means your plumbing, HVAC, and kitchen appliances are all protected. Not just protected, but also repaired within a reasonable timeframe by a professional technician.
It’s wise to have both areas covered, especially if you rent out an apartment or have Airbnb guests. This increases your risk of having a fire or theft, as most would agree, but what we rarely think about is how it also increases the wear and tear of appliances and reduces their lifespan.
The downfall of home warranties happens to be the strength of home insurance. If there’s a break-in, the police will determine what happened. There’s not much room for debate if you’ve had your window smashed and things were stolen. Your home insurance provider will likely not try to fight this; they will listen to the police, which makes the whole reimbursement process relatively stress-free (apart from the break-in …).
Home warranty providers are a different animal. The range of services offered vary greatly, and some even have similar names that make it confusing when looking for the right provider (for instance, HomeServe USA vs. Home Security of America). They have a much greater tendency of being argumentative and picky. Not necessarily all of them, but many have a poor reputation of denying claims based on appliances being too old and not maintained properly. Well, these two things are not in your control when you rent out your home, so there is still an element of risk.
Unlike home insurance companies that relatively quickly compensate you for your losses, there might also be an element of risk with home warranties regarding claims. Sometimes, even if you’re granted approval and your washing machine leak is promised to be fixed as soon as possible, there have been cases of delays, and you need to avoid home warranty scams.
So, if you’re going to get both, treat the home warranty company as if it’s a home insurance company. Have the same high standards. Check out the home warranty insurance award winners first. Be ruthless in finding the best home warranty company for your needs. Search for a different company at the first sign of unfairness. And you need to think twice before dealing with home warranty companies that do not have in-house technicians. If you live in a state with not much choice, like Washington, at the very least, research the contractors they use and see if they’re reputable and reliable.
The difference between a home warranty and home insurance might be unclear for some. A homeowner’s insurance vs. home warranty comparison is a good way to understand the difference between the two. Reading home warranty regulations is also a way to better comprehend what are the home warranty limitations. Once you recognize the difference between home insurance and home warranty, you can make a wise decision if you need them both.
Having both a home warranty and home insurance is usually worthwhile if you get the right companies. But that’s easier said than done. Sometimes, after all the research you can do, you have to just see for yourself and take the plunge. The key is to be uncompromising in switching to the next company. Of course, this is still too late if there’s a major system broken and they’re denying it, so reading through the contract is the number one prerequisite.