Home Warranty vs. Home Insurance- a Homeowners Guide

A home warranty and a home insurance policy are two very different types of protection that you can purchase for your home. Understanding the difference between the two is extremely important for any homeowner looking to adequately protect their home and belongings.

Home Warranty 101
A home warranty is a type of protection plan that a homeowner can purchase in order to protect them against costly financial repairs and replacement of household appliances and systems that fail due to normal wear and tear. The homeowner pays a lump premium for the policy each year and in the event that a covered appliance or system breaks down, they would contact their home warranty company to file a claim. The home warranty company then arranges for a specialized technician to come to your home and assess the repair. If the claim is covered under the warranty, the repairs would be made or in the event that the item couldn’t be repaired- it would be replaced. The homeowner typically pays one flat service fee ($60, $100, etc.) every time a claim is fulfilled however, additional labor and material charges are covered under the warranty.

The lowdown on homeowners insurance
Like a home warranty, a homeowners insurance policy offers financial protection for your home, however, the coverage varies greatly from those of a home warranty. A homeowners policy protects you from major damage caused to your home by various perils such as wind, hail, fire and theft– all of which are listed in your policy.  A standard homeowners policy typically covers the structure of your home; additional structures on your property including sheds and garages; and your personal property such as furniture, clothing and electronics.In addition, a homeowners insurance policy provides liability protection which protects you financially in the event of a lawsuit up to the limits in your policy. It also includes MedPay which covers some medical expenses for someone who is hurt on your property and doesn’t file a lawsuit. Finally, in the event of a covered claim, standard homeowners insurance usually provides loss of use coverage which helps pay for alternate living expenses you may incur when your home is being renovated or repaired such as hotel charges, take-out, dry cleaning services, etc. There are limits on all of these types of coverage which vary from policy to policy.

Are they required?
Because of the vast amount of damage and destruction that severe weather and fire can have on your home, most bank require that a mortgage holder carry a homeowners insurance policy on a property to protect the investment made in the property. Even when a homeowners policy is not required by a bank, it is widely accepted that homeowners should always carry a homeowners insurance policy to protect their personal investment in their home in the event of a partial or total loss.

A home warranty on the other hand is typically not required to be held on any property. However, many home professionals reccomend purchasing a warranty to help protect against unexpected breakdowns in expensive appliances such as heating furnaces and central A/C systems. Sometimes a homeowner trying to sell their home will purchase a home warranty on behalf of the buyer to give them some added reassurement that if something were to break in the first year, it would be taken care of.