Whether you already own a house or are ready to buy one, you will often come across brokers and agents talking about home insurance and home warranty. But there is a difference between the two and a lot of first-time home buyers are not aware of the same. Yes, they both safeguard your investment as well as your money, but they serve different purposes. Knowing the difference between them can help you decide whether you want to buy just one or you need both. Let’s take a look at each in detail so that you are in a better position to understand which works best for your home.
What is a home warranty?
Just the way you have a warranty for an appliance, a home warranty is a contract that will help pay for the repair and replacement of all the covered household appliances as well as home systems. If you have a lot of appliances, it is a good choice for you. However, it comes at a cost. You pay a monthly or annual fee, and you get a flat rate whenever you make a service call. In case an appliance or a system that is covered by the plan breaks down, the home warranty company will send a technician to help diagnose the problem and fix it. Once this is done, you only have to pay the service call fee. All the plans do have a coverage limit as well as an annual claim limit you must be aware of. You could get the home warranty as a part of your purchase transaction and your coverage will begin once you close the home.
Inclusions in a home warranty
According to CinchHomeServices.com, your home warranty will cover the systems and appliances in your new or old home. There are three types of plans you can choose from: one is an appliance plan which covers the HVAC home warranty, dishwasher, washing machine, or refrigerator warranty, the second one is a systematic plan which will cover the plumbing as well as the electrical systems and the third is a combination plan which includes both. You can also add specific items you want at an additional cost.
Cost of a home warranty
If you want to buy a home warranty, you will either pay a monthly fee or an annual fee. That said, there will be a service fee that you will have to pay whenever you request a repair for the appliance or the system.
What is homeowners’ insurance?
Just the way you have life insurance or health insurance to protect you in case of an illness, there is homeowners’ insurance which is property insurance and will keep you safe from the losses or damages caused due to covered perils. A policy can cover the structure of the home, it can provide coverage for personal belongings, liability protection as well as additional living expenses.
Inclusions of a homeowner’s insurance
The most sought-after policy will cover the home, belongings as well as your liability and it provides coverage for 16 perils or disasters. It will also cover the personal liability for injuries caused to other people as well as their property while they are at your home or on your property. Some of these include dog bites, injured domestic workers, and home accidents. However, your policy will not cover the damage or loss that is caused by earthquakes or floods. Go through each of the 16 perils so that you are aware of the inclusions as well as the exclusions with regard to the coverage and protection of your home.
Cost of homeowners insurance
The premium amount will be determined by different factors including the cost of home rebuilding, the place of residence, the size, condition, and features of your home, the value of your personal belongings, the coverage limit you choose, deductible, credit score and the history of insurance claims. You will only be able to know the premium amount when you apply for the insurance policy.
Difference Between Home Insurance & Home Warranty
- Home Insurance is required by lender whereas the home warranty is optional
- Home insurance is charged annually, so it’s a deductible, whereas a home warranty requires a service fees when a home appliance malfunctions
- Home insurance includes coverage for natural disasters, including earthquakes, tornadoes, thunderstorms, etc. On the other hand home warranty is a service contract that helps to pay for the repairs and replacement of home appliances.
- The scope of coverage in home insurance is big, including the house structure, belongings, and other assets directly related to the home. On the contrary, home warranty pertains to the home appliances only
The Bottom Line
Now that you are aware of the difference between a home warranty and homeowners’ insurance, you will be in a better position to decide which one you want to buy. You can also choose to buy both and ensure higher protection and security at all times. A home warranty is optional, but it can save you a lot of money in the long term.
If you’re concerned about routine maintenance expenses, like plumbing, appliances malfunction, you should get the home warranty. But if you live in outskirts where burglars, tornadoes are routine, you should go for the home insurance
They also make sense if you have systems and appliances that are not covered under a standard warranty. On the other hand, home insurance will cover the home as well as your belongings in case of theft or several other perils. No matter what you choose, do remember to read the fine print and understand the inclusions and exclusions, this will help make the right decision.